Double-entry accounting is a systematic method of recording financial transactions where each entry affects at least two accounts, ensuring that total debits equal total credits. Practicing double-entry exercises helps reinforce the principles of the accounting equation: Assets = Liabilities + Equity. Below are a series of exercises to test your understanding of journal entries, ledger postings, and trial balances.
1. Basic Journal Entry Exercises
For each of the following transactions, identify the accounts affected and prepare the journal entry.
A. Transaction 1: Owner Invests Capital
- Scenario: The owner invests $50,000 in cash to start a business.
- Accounts Affected: Cash (Asset) increases, and Capital (Equity) increases.
- Journal Entry:
Debit: Cash (Asset) $50,000 Credit: Owner’s Capital (Equity) $50,000
B. Transaction 2: Purchase of Equipment
- Scenario: The business buys equipment for $10,000 on credit.
- Accounts Affected: Equipment (Asset) increases, and Accounts Payable (Liability) increases.
- Journal Entry:
Debit: Equipment (Asset) $10,000 Credit: Accounts Payable (Liability) $10,000
C. Transaction 3: Payment of Rent
- Scenario: The business pays $2,000 in rent for the month.
- Accounts Affected: Rent Expense increases, and Cash (Asset) decreases.
- Journal Entry:
Debit: Rent Expense $2,000 Credit: Cash (Asset) $2,000
2. Ledger Posting Exercises
After recording journal entries, the next step is to post them to the ledger. Complete the following T-accounts for Cash, Equipment, Accounts Payable, and Rent Expense.
A. Cash Ledger
Cash (Asset)
---------------------------
Debit | Credit
50,000 | 2,000
| (Rent)
B. Equipment Ledger
Equipment (Asset) --------------------------- Debit | Credit 10,000 |
C. Accounts Payable Ledger
Accounts Payable (Liability)
---------------------------
Debit | Credit
| 10,000
D. Rent Expense Ledger
Rent Expense --------------------------- Debit | Credit 2,000 |
3. Trial Balance Exercise
Using the journal entries above, prepare a trial balance.
| Account Name | Debit ($) | Credit ($) |
|---|---|---|
| Cash | 48,000 | |
| Equipment | 10,000 | |
| Accounts Payable | 10,000 | |
| Rent Expense | 2,000 | |
| Owner’s Capital | 50,000 | |
| Total | 60,000 | 60,000 |
4. Adjusting Entries Exercise
At the end of the month, an adjusting entry is required for accrued salaries of $3,000.
A. Journal Entry for Accrued Salaries
Debit: Salaries Expense $3,000 Credit: Salaries Payable $3,000
B. Adjusted Trial Balance
| Account Name | Debit ($) | Credit ($) |
|---|---|---|
| Cash | 48,000 | |
| Equipment | 10,000 | |
| Accounts Payable | 10,000 | |
| Rent Expense | 2,000 | |
| Salaries Expense | 3,000 | |
| Salaries Payable | 3,000 | |
| Owner’s Capital | 50,000 | |
| Total | 63,000 | 63,000 |
5. Practicing Double-Entry Accounting
These exercises demonstrate the fundamental principles of double-entry accounting, from recording transactions in the journal to preparing a trial balance. By understanding how debits and credits work and practicing ledger posting, businesses can maintain accurate financial records and ensure compliance with accounting standards. Regular practice of double-entry exercises strengthens financial literacy and enhances the ability to analyze financial data effectively.