Journal Entries

Medium Test

Key Things To Know

j

Practice As You Learn

Self Test

b

Easy Test

h

Medium Test

i

Hard Test

Medium 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