A Power point presentation that discusses the Golden Rules of Accounting and the treatment of Real, Personal and Nominal Accounts. It illustrates with examples how various transactions can be made into journal entries using the basic principles of accounting.

1. MICKEY STARTS A
TEXTILE BUSINESS
Lets help him with Accounting


2. MICKEY’S STORY
• Mickey decides to start a business.
• He has Rs. 5 lakhs with him.
• He takes a loan for another Rs.5 Lakhs from the
Bank.

3. MICKEY’S STORY
• He procures the necessary permission from
the government and does the following:
buys a shop
buys the necessary furniture
gets electricity connection and
employs workers.

4. MICKEY’S STORY
• His business involves the following
activities:
buying clothes from Donald , a
wholesaler,
packing it using a packing machine
and
selling packed clothes to retailers
like Goofy

5. THE ELEMENTS MICKEY WILL COME
ACROSS WHILE DOING BUSINESS
• CASH
• loan from BANK
• BUILDING
• FURNITURE
• MACHINERY
• REPAIRS to building, furniture or machinery
• ELECTRICITY BILL

6. THE ELEMENTS MICKEY WILL COME
ACROSS WHILE DOING BUSINESS
• SALARY TO WORKERS
• clothes in wholesale called PURCHASES
• packed clothes called SALES
• payment to DONALD
• DISCOUNT RECEIVED from Donald
• payment from GOOFY
• DISCOUNT ALLOWED to Goofy

7. THE ELEMENTS MICKEY WILL COME
ACROSS WHILE DOING BUSINESS
• MICKEY HIMSELF
(Although he is the owner, he
is a separate person with
regard to his business.)
The cash he brings in will be called CAPITAL
and the business has to pay this amount
back to him.
Any amount he takes from the cash belonging
to the business, for his personal use will be
called DRAWINGS

8. CLASSIFICATION OF THE ELEMENTS
All the elements in the business can be
classified into the following:
1. Real and Artificial persons:
2. Non living things:

9. CLASSIFICATION OF THE ELEMENTS
3. Expenses : > REPAIRS
> BILL
> SALARY TO
4. Losses : > DISCOUNT ALLOWED to
5. Incomes : > (Elements like ‘Interest Received’
from Bank on the amount deposited)
(No items mentioned in the current
scenario fall under this class)
6. Gains : > DISCOUNT RECEIVED from

10. THE DIFFERENT ACCOUNTS
Once the elements are classified according to
their nature, they can be classified into the
following types of Accounts:
1. Real and Artificial
persons PERSONAL ACCOUNT
2. Non living things REAL ACCOUNT
3. Expenses, Losses,
Incomes and Gains NOMINAL ACCOUNT

11. THE DIFFERENT ACCOUNTS
1. PERSONAL ACCOUNT:
Personal A/c consists of the following:
 These elements either RECEIVE
MONEY &/or THINGS or GIVE MONEY &/or
THINGS.
 They take the role of RECEIVER or GIVER
 gives money to the business as loan.

12. THE DIFFERENT ACCOUNTS
 gives to the business in the beginning.
 gives/sells to , for which he receives
 If gives/sells the for credit, he will be
paid later.
 gives when receiving/buying from
 If buys/receives the on credit, he will pay
later.

13. THE DIFFERENT ACCOUNTS
2. REAL ACCOUNT:
Real A/c consists of the following:
 These elements either COME INTO THE
BUSINESS or GO OUT OF THE BUSINESS.
 , and are bought by
for whereby they come into the business
and goes out of the business.

14. THE DIFFERENT ACCOUNTS
 When are bought from for ,
come into the business
and
goes out of the business.
 If the purchase is done for credit,
comes into the business
and
will go out of the business only at a later date.

15. THE DIFFERENT ACCOUNTS
 When are sold to for ,
goes out of business
and
comes into the business.
 If the sales is done on credit,
goes out of the business
and
will come into the business only at a later date.

16. THE DIFFERENT ACCOUNTS
3. NOMINAL ACCOUNT:
Nominal A/c consists of the following:
>Repairs to building, furniture and machinery
> Bill
>Salary to
>Discount allowed to
>Discount received from

17. THE DIFFERENT ACCOUNTS
Repairs, Bill and Salary to are
expenses incurred by the business.
Discount allowed to is a loss for the
business as it involves the business
forgoing a part of the amount that is due
from its debtor.

18. THE DIFFERENT ACCOUNTS
Discount received from is a gain for the
business because a creditor of the business
is forgoing a part of the amount due to him.
Expenses and Losses are similar in nature
and Incomes and Gains are similar in
nature.
In nominal account, the elemsnts are either
EXPENSES AND LOSSES or INCOMES
AND GAINS

19. THE GOLDEN RULES OF ACCOUNTING
Every transaction has a DEBIT aspect and a CREDIT
aspect. According to the Golden Rules of Accounting:
 In PERSONAL A/c : DEBIT the RECEIVER &
CREDIT the GIVER
 In REAL A/c : DEBIT what COMES IN &
CREDIT what GOES OUT
 In NOMINAL A/c : DEBIT all EXPENSES AND LOSSES &
CREDIT all INCOMES AND GAINS

20. TRANSACTIONS

21. (1) 0n 1/1/2015 Mickey invests Rs.5
lakhs in the business
• Elements : Cash and Mickey
(Since Mickey is the owner, the
cash he contributes will be called
Capital. It is treated as Personal A/c)
Cash and Capital
• Cash A/c : Real A/c – Comes in – Debit
Capital A/c : Personal A/c – Giver - Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
1/1 Cash A/c Dr. 5,00,000
To Capital A/c 5,00,000
(Being cash brought in by
the owner)

22. (2) On 4/1/2015 Mickey takes a loan
of Rs.5 Lakhs from the bank
• Elements: Cash and Bank
• Cash A/c : Real A/c – Comes in – Debit
Bank A/c : Personal A/c – Giver - Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
4/1 Cash A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Being loan taken from
bank )

23. (3) On 7/1/2015 Mickey buys a shop
building worth Rs.2 Lakhs
• Elements: Building and Cash
• Building A/c : Real A/c – Comes in – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
7/1 Building A/c Dr. 2,00,000
To Cash A/c 2,00,000
(Being building
bought for
Rs. 2 lakhs )

24. (4) On 10/1/2015 Mickey buys
furniture worth Rs.10,000
• Elements: Furniture and Cash
• Furniture A/c: Real A/c – Comes in – Debit
Cash A/c : Real A/c – Goes out –Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
10/1 Furniture A/c Dr. 10,000
To Cash A/c 10,000
(Being furniture
bought)

25. (5) On 13/1/2015 Mickey buys a
packing machine worth Rs.75,000
• Elements: Machine and Cash
• Machine A/c : Real A/c – Comes in – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
13/1 Machinery A/c Dr. 75,000
To Cash A/c 75,000
(Being Machinery
bought)

26. (6) On 16/1/2015 Mickey buys cloth from
Donald for Rs.7500 and pays in cash
• Elements: Cloth and Cash
(‘Cloth’ here refers to the item which Mickey
uses in his trade. Hence it is called Purchases.)
Purchases and Cash
• Purchases A/c: Real A/c – Comes in – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
16/1 Purchases A/c Dr. 7500
To Cash A/c 7500
(Being cash purchase )

27. (7) On 19/1/2015 Mickey incurs Rs.500 as
repair charges for the packing machinery
• Elements: Repair for Machinery and Cash
• Repairs for Machinery A/c
: Nominal A/c – Expense – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
19/1 Repairs for Machinery A/c Dr. 500
To Cash A/c 500
(Being repairs for Machinery)

28. (8) On 22/1/2015 Mickey sells packed
cloth worth Rs.10,000 to Goofy for cash
• Elements: Packed cloth and Cash
(‘Packed cloth’ here refers to the item in which
Mickey trades. Hence it is called Sales.)
Sales and Cash
• Cash A/c : Real A/c – Comes in – Debit
Sales A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
22/1 Cash A/c Dr. 10,000
To Sales A/c 10,000
(Being cash sales)

29. (9) On 23/1/2015 Mickey buys cloth
worth 10,000 from Donald for credit
• Elements: Purchases and Credit
(Here the purchase is done for credit. No cash
is paid. The Giver is credited for the amount
due to him.)
Purchases and Donald
• Purchases A/c: Real A/c – Comes in – Debit
Donald A/c : Personal A/c – Giver – Credit
• Journal entry :
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
23/1 Purchases A/c Dr. 10,000
To Donald A/c 10,000
(Being credit purchases)

30. (10) On 25/1/2015 Mickey sells packed
cloth worth Rs.15,000 to Goofy on credit
• Elements: Sales and Credit
(Here the sales is done for credit. No cash is
received. The Receiver is debited for the
amount due from him.)
Sales and Goofy
• Goofy A/c : Personal A/c – Receiver – Debit
Sales A/c : Real A/c – Goes out - Credit
• Journal entry
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
25/1 Goofy A/c Dr. 15,000
To Sales A/c 15,000
(Being credit sales)

31. (11) On 28/1/2015 Mickey pays Donald Rs.8,000
and Donald allows Mickey a Discount of Rs.2,000
• Elements: Cash, Discount Received and Donald
( Here Mickey receives a discount from Donald. The amount
Mickey need not pay is a gain for Mickey’s business.)
• Donald A/c : Personal A/c – Receiver – Debit
Cash A/c : Real A/c – Goes out – Credit
Discount Received A/c : Nominal A/c – Gain – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
28/1 Donald A/c Dr. 10,000
To Cash A/c 8,000
To Discount Received A/c 2,000
(Being payment to creditor made
and discount received)

32. (12) On 31/1/2015 Mickey receives Rs.14,000 from
Goofy in full settlement of the amount due from him
• Elements: Cash, Discount Allowed and Goofy
(Here Mickeys allows Goofy a discount. The amount Goofy
will not pay because of the discount is a loss to Mickey’s
business.)
• Cash A/c : Real A/c – Comes in – Debit
Discount Allowed A/c : Nominal A/c – Loss – Debit
Goofy A/c : Personal A/c – Giver - Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
31/1 Cash A/c Dr. 14,000
Discount Allowed A/c Dr. 1,000
To Goofy A/c 15,000
(Being payment received from
debtor and discount allowed)

33. (13) On 2/2/2015 Mickey pays
Rs.3,000 as salary to workers
• Elements: Salary to workers and Cash
• Salary A/c: Nominal A/c – Expense – Debit
Cash A/c : Real A/c – Goes out - Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2/2 Salary A/c Dr. 3,000
To Cash A/c 3,000
(Being salary paid)

34. (14) On 2/2/2015 Mickey pays Rs.5000 as
electricity bill charges for the last month
• Elements: Electricity Bill and Cash
• Electricity Charges A/c
: Nominal A/c – Expenses – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2/2 Electricity charges A/c Dr. 5,000
To Cash A/c 5,000
(Being electricity charges
paid)

35. (15) 0n 4/2/2015 Mickey takes Rs.3,000
to buy a cycle for his personal use
• Elements: Cash and Mickey
(Here Mickey withdraws cash for his personal use. Such
withdrawals are called Drawings. It is treated as
Personal A/c )
Cash and Drawings
• Drawings A/c : Personal A/c – Receiver – Debit
Cash A/c : Real A/c – Goes out – Credit
• Journal entry:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
4/2 Drawings A/c Dr. 3,000
To Cash A/c 3,000
(Being drawings made by
the owner )

36. Now that we’ve helped Mickey learn the
basics of Accounting, and Journalizing,
lets hope that he does well in his
business…

37. ADIOS AMIGOS !!
