Journal Entries
Medium Practice Test
Financial Accounting
Journal Entries
Medium Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. The company made a payment to suppliers for amounts owed. Which of the
following is done to record this transaction?
a. credit accounts payable
b. debit cash
c. debit accounts payable
d. credit accounts receivable
Check Your Answer
C. Making a payment is a decrease to cash and a decrease to an asset is recorded with a debit (not one of the choices). Paying amounts owed is a decrease to a liability which is recorded with a debit. Amounts owed to suppliers is accounts payable.
2. Paying for a service before it is provided requires a
a. credit to a revenue account
b. a debit to a revenue account
c. a debit to an asset account
d. a credit to a liability account
Check Your Answer
C. This is an increase in the asset, prepaid expense. Increasing an asset is recorded with a debit.
3. Borrowing cash from a bank and agreeing to repay it in 2 years will be recorded with
a. a credit to notes payable and a debit to cash
b. a debit to notes payable and a credit to cash
c. a debit to notes payable and a debit to cash
d. a credit to notes payable and a debit to interest expense
Check Your Answer
A. Borrowing from a bank is called notes payable. Borrowing is an increase to notes payable which is recorded with a credit. Receiving cash is an increase to an asset which is recorded with a debit. Each journal entry must have at least one debit and one credit.
4. The inventory account is debited when
a. inventory is sold
b. the supplier is paid for inventory purchased on account
c. inventory is purchased and received
d. the customer pays for inventory at the same time it is received
Check Your Answer
C. Inventory is an asset which is debited when it increases. Increases in inventory occur when it is purchased and received.
5. A credit to cash and a debit to notes payable is recorded when
a. a company borrows from investors
b. a company repays what it owes to the bank
c. a company borrows from a bank
d. a company borrows from suppliers
Check Your Answer
B. Credit to cash is a decrease and debit to notes payable is a decrease. Less cash and less owed occurs when amounts are paid.
6. A debit to investments and a credit to cash is recorded when
a. a company gets cash from selling an investment
b. a company uses cash to purchase an investment
c. a company issues common stock
d. a company uses cash to purchase their own stock from investors
Check Your Answer
B. A debit to investments is an increase in investments. A credit to cash is a decrease in cash. Assets increase with a purchase.
7. When recording the company purchased inventory on account you would
a. debit cash and credit accounts payable
b. credit cash and debit accounts payable
c. credit accounts payable and debit inventory
d. credit notes payable and debit inventory
Check Your Answer
C. Purchasing inventory is an increase in inventory which is recorded with a debit. On accounts means the company will pay for it later, which is an increase in a liability called accounts payable. Increasing a liability is recorded with a credit. Cash is not paid yet so it will not be used in the journal entry.
8. Supplies expense is always debited when
a. supplies are used up
b. cash is paid for supplies
c. a liability is incurred
d. a revenue is earned
Check Your Answer
A. An expense is debited when it increases. Supplies expense is recorded when the supplies are used up. An expense occurs when an asset is used up.
9. Interest earned is recorded with
a. a credit to interest revenue
b. a debit to interest expense
c. a credit to interest payable
d. a debit to interest revenue
Check Your Answer
A. Earned means revenue increased. An increase to revenues is recorded with a credit.
10. Revenues and expenses are recorded in the same transaction when
a. goods are provided to the customer
b. a liability is incurred
c. an asset is received in exchange for providing a service
d. the two types of accounts are never recorded in the same transaction
Check Your Answer
A. The only time a company provides to the customer (revenue) and uses up an asset (expense) is when the company provides goods to the customer. Sales (revenue) and cost of goods sold (expense) are recorded in the same transaction.
11. A company had the following transactions during the first month of operations. Record journal entries for each transaction. Determine the balance in the cash account at the end of the first month.
1) Borrowed $150,000 cash from the bank. $30,000 is to be repaid at the end of each year for the next 5 years.
2) Purchased inventory; $30,000 to be paid in 30 days.
3) Rented warehouse space, $2,000 was paid for this month.
4) Paid $300 for advertising to be run equally over this month and the
next 2 months.
5) Purchased computer equipment; paid $3,000 and put $2,000 on account
6) Employees worked and earned $3,900; employees were paid $3,300
7) Sold $15,000 of inventory on account for a sales price of $25,000.
8) Purchased $500 of office supplies on account, not yet used
9) Acquired manufacturing equipment costing $55,000; paid ½ down and
agreed to pay monthly payments for the balance for 3 years.
10) Paid $25,000 on accounts owed.
11) Collected $10,000 from customers for amounts owed.
12) Received $1,200 from a customer for services to be performed next month.
Check Your Answer
1.
Cash 150,000
S/T Notes Payable 30,000
L/T Notes Payable 120,000
Asset – Increase – Debit
Liabilities – Increase – Credits
2.
Inventory 30,000
Accounts Payable 30,000
Asset – Increase – Debit
Liability – Increase – Credit
3.
Rent Expense 2,000
Cash 2,000
Expense – Increase – Debit
Asset – Decrease – Credit
4.
Advertising Expense 100
Prepaid Expense 200
Cash 300
Expense – Increase – Debit
Asset – Increase – Debit
Asset – Decrease – Credit
5.
Computer Equipment 5,000
Cash 3,000
Accounts Payable 2,000
Asset – Increase – Debit
Asset – Decrease – Credit
Liability – Increase – Credit
6.
Salaries Expense 3,900
Cash 3,300
Salaries Payable 600
Expense – Increase – Debit
Asset – Decrease – Credit
Liability – Increase – Credit
7.
Accounts Receivable 25,000
Sales 25,000
Cost of Goods Sold 15,000
Inventory 15,000
Asset – Increase – Debit
Revenue – Increase – Credit
Expense – Increase – Debit
Asset – Decrease – Credit
8.
Office Supplies 500
Accounts Payable 500
Asset – Increase – Debit
Liability – Increase – Credit
9.
Manufacturing Equipment 55,000
Cash 27,500
S/T Notes Payable 9,167
L/T Notes Payable 18,333
Asset – Increase – Debit
Asset – Decrease – Credit
Liabilities – Increase – Credit
10.
Accounts Payable 25,000
Cash 25,000
Liability – Decrease – Debit
Asset – Decrease – Credit
11.
Cash 10,000
Accounts Receivable 10,000
Asset – Increase – Debit
Asset – Decrease – Credit
12.
Cash 1,200
Unearned Revenue 1,200
Asset – Increase – Debit
Liability – Increase – Credit
Important:
“Paid” is always a credit to cash
“Received” or “collected” is always a debit to cash
Read the transaction and record to cash first if cash is affected.
This will help you to identify the other account used.
12. A company had the following transactions during the first month of operations. Record journal entries for each transaction. Determine the balance in the cash account at the end of the period.
1) Received $200,000 from issuing stock to investors
2) Purchased a building for $139,000, agreeing to pay equal monthly payments for 10 years on a mortgage note.
3) Provided $25,000 in services to customers collecting $12,500 and agreeing to receive the rest in 30 days.
4) Loaned a supplier $20,000, to be repaid in 6 months.
5) Received dividends on investments owned; $400
6) Earned interest of $2,200, not yet collected
7) Purchased inventory on account; $12,000
8) Provided goods to customers for $28,000 on account that cost the company $10,500
9) Collected $5,000 from the supplier who borrowed from the company
10) Paid $240 to rent equipment this month.
11) Income tax expense incurred and not yet been paid is $15,200
Check Your Answer
1.
Cash 200,000
Common Stock 200,000
Asset – Increase – Debit
Owner’s Equity – Increase – Credit
2.
Building 139,000
S/T Mortgage Payable 13,900
L/T Mortgage Payable 125,100
Asset – Increase – Debit
Liabilities – Increase – Credit
3.
Cash 12,500
Accounts Receivable 12,500
Service Fees 25,000
Assets – Increase – Debit
Revenue – Increase – Credit
4.
S/T Note Receivable 20,000
Cash 20,000
Asset – Increase – Debit
Asset – Decrease – Credit
5.
Cash 400
Dividend Revenue 400
Asset – Increase – Debit
Revenue – Increase – Credit
6.
Interest Receivable 2,200
Interest Revenue 2,200
Asset – Increase – Debit
Revenue – Increase – Credit
7.
Inventory 12,000
Accounts Payable 12,000
Asset – Increase – Debit
Liability – Increase – Credit
8.
Accounts Receivable 28,000
Sales 28,000
Cost of Goods Sold 10,500
Inventory 10,500
Asset – Increase – Debit
Revenue – Increase – Credit
Expense – Increase – Debit
Asset – Decrease – Credit
9.
Cash 5,000
S/T Note Receivable 5,000
Asset – Increase – Debit
Asset – Decrease – Credit
10.
Rent Expense 240
Cash 240
Expense – Increase – Debit
Asset – Decrease – Credit
11.
Income Tax Expense 15,200
Income Tax Payable 15,200
Expense – Increase – Debit
Liability – Increase – Credit
13. The company began the year with the following balances:
| Cash | $55,000 |
| Accounts Receivable | $32,000 |
| Inventory | $45,000 |
| Accounts Payable | $33,000 |
| Accrued Expenses | $2,000 |
| L/T Notes Payable | $80,000 |
| Salaries Payable | $4,000 |
| Common Stock | $1,000 |
| Retained Earnings | $12,000 |
Record journal entries for the following transactions. Prepare “T accounts” for each
balance sheet account and prepare a balance sheet.
a. Paid $22,000 to suppliers owed
b. Paid employees the full amount owed
c. Repaid $5,000 to the bank
d. Collected one half of what customers owe the company
e. Purchased inventory on account for $10,000
f. Paid for insurance for the next 3 months; $900
g. Paid $2,000 for advertising invoiced last month
h. Purchased computer equipment for the office for $1,200 cash
i. Paid rent for next month, $800
j. Signed a contract to provide a customer $5,000 in goods next month
Check Your Answer
a.
Accounts Payable 22,000
Cash 22,000
Liability – Decrease – Debit
Asset – Decrease – Credit
b.
Salaries Payable 4,000
Cash 4,000
Liability – Decrease – Debit
Asset – Decrease – Credit
c.
L/T Notes Payable 5,000
Cash 5,000
Liability – Decrease – Debit
Asset – Decrease – Credit
d.
Cash 16,000
Accounts Receivable 16,000
Asset – Increase – Debit
Asset – Decrease – Credit
e.
Inventory 10,000
Accounts Payable 10,000
Asset – Increase – Debit
Liability – Increase – Credit
f.
Prepaid Insurance 900
Cash 900
Asset – Increase – Debit
Asset – Decrease – Credit
g.
Accrued Expenses 2,000
Cash 2,000
Liability – Decrease – Debit (or debit to accounts payable)
Asset – Decrease – Credit
h.
Computer Equipment 1,200
Cash 1,200
Asset – Increase – Debit
Asset – Decrease – Credit
i.
Prepaid Rent 800
Cash 800
Asset – Increase – Debit
Asset – Decrease – Credit
j.
No exchange – nothing recorded
The balance in your T accounts will be the amounts reported on the balance sheet for each account.
Asset accounts have a debit balance
Liability accounts have a credit balance
Owner’s Equity accounts have a credit balance
| Assets | Liabilities | |||
| Cash | 35,100 | Accounts Payable | 21,000 | |
| Accounts Receivable | 16,000 | |||
| Inventory | 55,000 | |||
| Prepaid Insurance | 900 | Total Current Liabilities | 21,000 | |
| Prepaid Rent | 800 | |||
| Total Current Assets | 107,800 | L/T Notes Payable | 75,000 | |
| Total Liabilities | 96,000 | |||
| P/P/E: | Owner’s Equity | |||
| Computer Equipment | 1,200 | Common Stock | 1,000 | |
| Retained Earnings | 12,000 | |||
| Total Owner’s Equity | 13,000 | |||
| Total Assets | 109,000 | Total Liabilities & Owner’s Equity | 109,000 | |