5 Debit and Credit Practice Questions & Solutions

You’re in for a treat with this video titled “5 Debit and Credit Practice Questions & Solutions” by Accounting Stuff. In this episode, Accounting Basics for Beginners is taking you through five examples of debit and credit problems, providing solutions along the way. If you’ve been struggling with understanding debits and credits in accounting, this video is just what you need. The host, James, will guide you step-by-step through each question, using the mnemonic “DEALER” to help you remember the normal debit and credit accounts. With these practice questions, accounting will start to feel like a walk in the park. Stick around until the end because the examples get progressively more challenging. So get ready to put your skills to the test and boost your understanding of debits and credits!

Introduction

Welcome to this comprehensive article on debit and credit practice questions. In this article, we will dive into five different scenarios and provide solutions to help reinforce your understanding of debit and credit concepts in accounting. Whether you are a beginner or looking to refresh your knowledge, this article will guide you through each question step by step. We will also introduce a handy technique called “DEALER” that will help you remember the normal debit and credit accounts. By the end of this article, you will feel confident in your ability to tackle these types of questions.

Question 1: The Owner’s Initial Investment

Let’s start with the first question: the owner of a carwash provides their company with a $1000 initial investment. The question asks whether the entry to the company’s cash account is a debit or a credit. To answer this, we need to understand that cash is an asset, and assets increase when debited. Therefore, the entry to the company’s cash account in this scenario would be a debit.

Question 2: Entry to Owner’s Equity

Moving on to the second question: is the entry to owner’s equity a debit or a credit? There are two ways to approach this. In method 1, we can use the “DEALER” technique. Owner’s equity is a normal credit account, which means credits increase it and debits decrease it. In this scenario, the owner of the carwash has invested $1000 into the company, so we need to credit owner’s equity to reflect the increase. Alternatively, in method 2, we can think about double-entry bookkeeping. Since we already debited cash in question 1, we must credit owner’s equity to maintain balance. So, the entry to owner’s equity would be a credit.

Question 3: Payment to a Supplier

Let’s move on to question 3: the carwash pays a supplier $200 in cash. The question asks which account is debited, accounts payable or cash. In this scenario, the carwash is making a cash payment to the supplier, which means their cash balance needs to decrease. The account that is debited is cash. Additionally, the carwash is reducing the amount they owe to the supplier, which means accounts payable, a form of liability, needs to decrease as well. Therefore, the answer is that accounts payable should be debited.

Question 4: Customer Payment on Account

Now, let’s tackle question 4: a customer gets their car washed for $10 and pays on account with 30-day payment terms. The question asks which account is credited, revenue or accounts receivable. In this scenario, we can eliminate cash because the transaction does not involve cash. The customer still owes the carwash $10, but they have 30 days to make the payment due to the credit terms. Since a service has been provided to the customer, we need to recognize revenue. Revenue is a normal credit account that increases when credited, so the account credited in this scenario is revenue.

Question 5: Customer Payment Received

Lastly, let’s look at question 5: the carwash receives the $10 from the customer the following month. The question asks which account is credited, revenue or accounts receivable. Here, we can eliminate revenue because the transaction does not involve revenue recognition. Revenue was already recognized back in question 4 when the service was provided. The options left are cash and accounts receivable. Since the carwash receives the payment in cash, the account that needs to be debited to increase the cash balance is cash. This leaves us with accounts receivable, which needs to be credited to reduce the amount owed by the customer.

Conclusion

In conclusion, practicing debit and credit concepts in accounting is essential for a thorough understanding of the subject. By using the “DEALER” technique and understanding the normal debit and credit accounts, you can confidently answer practice questions like the ones we discussed in this article. Remember that assets increase with debits and decrease with credits, while liabilities and owner’s equity increase with credits and decrease with debits. Continued practice and understanding of accrual basis accounting will further enhance your knowledge in this area. So keep practicing and don’t hesitate to seek additional resources for further clarification.