Journal Entries

Easy Test

Key Things To Know

j

Practice As You Learn

Self Test

b

Easy Test

h

Medium Test

i

Hard Test

Easy  Test

Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.

1. A revenue account is credited this period when

a. services are provided to a customer this period
b. services are provided to the company this period
c. services are paid for this period and provided next period
d. income is earned last period

Check Your Answer
A. A revenue account is credited when it is increased. Revenues are recorded with an increase when the revenue is earned this period; a good or service has been provided this period. (b.) is an expense.
2. An expense account is debited this period when

a. services are provided to a customer this period
b. services are provided to the company this period
c. services will be paid for this period and provided next period
d. services will be provided to the company next period

Check Your Answer
B. Expense accounts are debited when they increase. A service provided to the company this period is an increase in to the expense this period.
3. What is recorded when wages are paid to employees who worked this period?

a. a debit to an asset and a credit to a liability
b. a credit to a revenue and a debit to an asset
c. a debit to an expense and a credit to an asset
d. a debit to a liability and a credit to a revenue

Check Your Answer
C. Wages paid to employees who worked this period is an increase to an expense and a decrease to cash. Increasing an expense is a debit and decreasing cash, an asset, is a credit.
4. Dividends earned and not yet received are recorded with

a. a debit to an asset and a credit to a liability
b. a credit to a revenue and a debit to an asset
c. a debit to an expense and a credit to an asset
d. a debit to a liability and a credit to cash

Check Your Answer
B. Earned means it is a revenue. Revenues increase with a credit. Not yet received is a receivable which is an asset. Assets increase with a debit.
5. Using up prepaid rent is recorded with

a. a credit to a liability
b. a debit to an expense
c. a credit to an expense
d. a debit to an asset

Check Your Answer
B. Using up the asset prepaid rent is an expense. An increase to an expense is recorded with a debit. Using an asset is also a decrease to the asset which is recorded with a credit. This is not one of the choices.
6. Cash paid for salaries owed to employees for working last month is
recorded with

a. a debit to a liability
b. a credit to an expense
c. a credit to a revenue
d. a debit to an expense

Check Your Answer
A. Paying for an amount owed is a decrease to cash and a decrease to the liability. Assets are decreased with a credit and liabilities are decreased with a debit. The expense was recorded last period with a debit when the service was provided.
7. Depreciation expense is recorded in the same transaction as

a. a credit to equipment
b. a credit to accumulated depreciation
c. a credit to accrued expenses
d. a credit to prepaid expenses

Check Your Answer
B. Accumulated depreciation is the account that is always credited when recording depreciation expense. This account is the total of all prior years’ depreciation expense. Accumulated depreciation is a contra asset account which means it is opposite of an asset. Assets increase with a debit, so accumulated depreciation is increased with a credit (opposite).
8. An increase to an expense will be recorded in the same transaction with

a. a credit to a liability
b. a debit to a liability
c. a credit to a revenue
d. a credit to owner’s equity

Check Your Answer
A. The expense must be paid for now or paid for later. The expense is a debit, so the other account must be a credit. Payment now decreases the asset cash. Decreasing an asset is done with a credit which is not one of the choices. Paying later increases a liability which is done with a credit (b). A revenue and expense is not recorded together in the same journal entry.
9. The company issued stock to investors. Which of the following is done to record this transaction?

a. credit owner’s equity and debit retained earnings
b. debit an asset and credit an asset
c. credit an assets and debit a liability
d. debit an asset and credit owner’s equity

Check Your Answer
D. Issuing stock to investors increases cash, recorded with a debit, and increases common stock, recorded with a credit.
10. The company purchases a truck and pays cash. Which of the following is done to
record this transaction?

a. debit cash and credit truck
b. debit truck and credit accounts payable
c. debit truck and credit cash
d. debit truck expense and credit cash

Check Your Answer
C. Truck increases and cash decreases. Both are assets. The truck increases with a debit and the cash decreases with a credit.
11. Journal entries are used for the purpose of

a. recording transactions only
b. recording and summarizing transactions
c. determining if the accounting equation balances
d. listing all the account names used

Check Your Answer
A. Journal entries are made to record transactions. T accounts summarize transactions to get account balances that are reported on the financial statements. Recording debits and credits properly will balance the accounting equation (c.) A trial balance lists all account names used
12. Which of the following transactions requires a credit to a liability account?

a. purchase an asset and pay cash
b. purchase an asset and agree to pay later
c. issue common stock
d. repay a liability

Check Your Answer
B. A credit to a liability account is an increase. An increase to a liability occurs when the company borrows to purchase an asset and pays later. Repaying a liability is a debit to the liability (d.) (a. & c.) do not impact a liability.
13. The account name debited when the company pays a supplier is

a. accounts receivable
b. accounts payable
c. supplies
d. cash

Check Your Answer
B. Owing a supplier is called accounts payable. Cash is credited when payment is made. Accounts payable is debited.
14. The account name debited when the company collects from a customer is

a. cash
b. accounts payable
c. accounts receivable
d. none of the above

Check Your Answer
A. Amounts owed from the customer is accounts receivable. The customer pays cash to the company. Cash is increased (debit) and accounts receivable is decreased (credit); both are assets.
15. Account names that will not be used to record the same transaction are

a. cash and accounts receivable
b. cash and inventory
c. accounts receivable and accounts payable
d. accounts payable and cash

Check Your Answer
C. The company can not owe someone and be owed as a result of the same transaction. The other choices are cash being paid or collected, which are common transactions.
16. Record journal entries for following transactions. After recording the transactions,
prepare a “T account” and balance the cash account.

a. Issued stock to investors for $125,000 cash
b. Purchased office furniture for $3,200, agree to pay the entire amount in 2 years.
c. Purchased computers for the office for $1,200 cash
d. Paid for rent for the next 3 months, $600
e. Purchased office supplies for $75 cash
f. Purchased inventory on account for $15,000
g. Paid $11,000 to the supplier for the inventory purchased in f.
h. Hired employees who will begin work in 2 weeks
i. Borrowed $10,000 from the bank to be repaid in 6 months
j. Loaned $2,500 to a company who agrees to repay it in 2 years

Check Your Answer
a.
Cash                                               125,000
       Common Stock                              125,000

Asset – Increase – Debit
Owner’s Equity – Increase – Credit

b.
Office Furniture                              3,200
       L/T Notes Payable                            3,200

Asset – Increase – Debit
Liability – Increase – Credit

c.
Computers                                        1,200
       Cash                                                      1,200

Asset – Increase – Debit
Asset – Decrease – Credit

d.
Prepaid Rent                                       600
       Cash                                                        600

Asset – Increase – Debit
Asset – Decrease – Credit

e.
Office Supplies                                       75
       Cash                                                            75

Asset – Increase – Debit
Asset – Decrease – Credit

f.
Inventory                                        15,000
       Accounts Payable                            15,000

Asset – Increase – Debit
Liability – Increase – Credit

g.
Accounts Payable                          11,000
       Cash                                                    11,000

Liability – Decrease – Debit
Asset – Decrease – Credit

h.
No entry recorded, no exchange has taken place

i.
Cash                                                 10,000
       S/T Notes Payable                          10,000

Asset – Increase – Debit
Liability – Increase – Credit

j.
L/T Notes Receivable                     2,500
       Cash                                                     2,500

Asset – Increase – Debit
Asset – Decrease – Credit

17. Record journal entries for the following transactions. After recording the
transactions, prepare a “T account” and balance the accounts payable account.

a. Borrowed $50,000 from the bank, agreed to repay it in 3 years
b. Purchased manufacturing equipment for $20,000 cash
c. Purchased office furniture on account, $2,700
d. Paid for insurance for the next 6 months, $2,200
e. Repaid $10,000 of the amount borrowed from the bank
f. Purchased inventory on account, $15,000
g. Purchased supplies for cash, $100
h. Paid the supplier $14,000 for inventory purchased on account
i. Invested $3,000 in a short term investment
j. Sold part of the company to investors for $50,000 cash

Check Your Answer
a. 
Cash                                                50,000
       L/T Notes Payable                         50,000

Asset – Increase – Debit
Liability – Increase – Credit

b. 
Manufacturing Equipment        20,000
Cash                                                         20,000

Asset – Increase – Debit
Asset – Decrease – Credit

c. 
Office Furniture                               2,700
Accounts Payable                                     2,700

Asset – Increase – Debit
Liability – Increase – Credit

d. 
Prepaid Insurance                          2,200
       Cash                                                     2,200

Asset – Increase – Debit
Asset – Decrease – Credit

e.
L/T Notes Payable                        10,000
       Cash                                                   10,000

Liability – Decrease – Debit
Asset – Decrease – Credit

f.
Inventory                                        15,000
       Accounts Payable                            15,000

Asset – Increase – Debit
Liability – Increase – Credit

g. 
Supplies                                               100
       Cash                                                        100

Asset – Increase – Debit
Asset – Decrease – Credit

h.
Accounts Payable                          14,000
       Cash                                                   14,000

Liability – Decrease – Debit
Asset – Decrease – Credit

i.
S/T Investment                               3,000
Cash                                                            3,000

Asset – Increase – Debit
Asset – Decrease – Credit

j.
Cash                                                  50,000
       Common Stock                               50,000

Asset – Increase – Debit
Owner’s Equity – Increase – Credit

18. A company had the following transactions during the first month of operations. Record journal entries for these transactions. Determine the balance in the cash account at the end of the first month.

a. Received $150,000 cash from investors for ownership in the company.
b. Purchased inventory to be sold to customers, $45,000 on account.
c. Rented warehouse space, $6,000 was paid for this month.
d. Sold $5,000 of inventory on account (you have not been paid yet), sales price of $7,500.
e. Acquired office furniture for $3,000 cash
f. Paid $12,000 to employees who worked this month.
g. Acquired manufacturing equipment costing $39,000, paid cash.
h. Paid $700 for janitorial service.
i. Received a $100 utility bill for this month.
j. Collected $7,500 owed from customers.

Check Your Answer
a.
Cash                                               150,000
       Common Stock                              150,000

Asset – Increase – Debit
Owner’s Equity – Increase – Credit

b.
Inventory                                        45,000
       Accounts Payable                           45,000

Asset – Increase – Debit
Liability – Increase – Credit

c.
Rent Expense                                   6,000
       Cash                                                     6,000

Expense – Increase – Debit
Asset – Decrease – Credit

d.
Accounts Receivable                       7,500
       Sales                                                     7,500

Cost of Goods Sold                         5,000
       Inventory                                            5,000

Asset – Increase – Debit
Revenue – Increase – Credit

Expense – Increase – Debit
Asset – Decrease – Credit

e.
Office Furniture                              3,000
       Cash                                                     3,000

Asset – Increase – Debit
Asset – Decrease – Credit

f.
Salary Expense                              12,000
       Cash                                                   12,000

Expense – Increase – Debit
Asset – Decrease – Credit

g.
Manufacturing Equipment        39,000
       Cash                                                  39,000

Asset – Increase – Debit
Asset – Decrease – Credit

h.
Cleaning Expense                               700
       Cash                                                         700

Expense – Increase – Debit
Asset – Decrease – Credit

i. 
Utility Expense                                    100
       Accounts Payable                                  100

Expense – Increase – Debit
Liability – Increase – Credit

j.
Cash                                                   7,500
       Accounts Receivable                         7,500

Asset – Increase – Debit
Asset – Decrease – Credit