5 Debit and Credit Practice Questions & Solutions

5 Debit and Credit Practice Questions & Solutions

In this video I’m going to take you
through five practice questions on Debits and Credits
that will help prepare you for ANYTHING! [Music] Hey viewers,
Welcome to Accounting Stuff. I’m James and today
we’re gonna dive right into some Debit and Credit
practice problems. I floated the idea of doing this kind of thing
a couple of weeks ago and you guys seemed keen
so here we go. We’re going to cover five
Debit and Credit examples and I’m going to show you
my thought process that I used to solve each one.
The technique that I’m about to show you helped me pass my accounting exams
way back when so I hope you find this a
useful tool to add to your Accounting arsenal.
These questions are going to get progressively more difficult
so don’t forget to stick around until the end.
One last thing before we get stuck in… for these questions we are going to assume
the Accrual Basis of Accounting. If you don’t know what that means
have no fear I’ve done a video covering
it already and there should be a link to it
somewhere up here in the corner.
Let’s do this! Question 1
The owner of a Car Wash provides their company with a
one thousand dollar initial investment.
Is the entry to the company’s cash account…
A: a Debit or
B: a Credit The first thing to take note of is that
cash is an asset. That’s the “A” in DEALER.
Now what’s DEALER? Here’s a little cheat sheet that I made
to help us out with these questions. DEALER is an easy way
for us to remember the expanded accounting equation.
Dividends plus Expenses plus Assets are equal to
Liabilities plus Owner’s Equity plus Revenue.
The left-hand side of this equation are normal Debit accounts.
These increase when Debited and decrease when Credited.
On the right-hand side we have the normal Credit accounts.
These increase when Credited and decrease when Debited.
I just said that cash is the “A” in DEALER.
That makes an asset and those
increase when Debited and decrease when Credited.
In this question the initial investment causes
the company’s cash to increase. So the answer is A,
a Debit. Question number two and this follows on from the first one.
Is the entry to Owner’s Equity… a Debit
or a Credit. There are two ways we can go
about solving this. In Method 1 we use DEALER.
Owner’s Equity is the second “E” in DEALER.
So we know that it’s a normal Credit account.
That means Credits increase it and Debits decrease it.
The owner of the Car Wash has invested one thousand dollars
into the company so Owner’s Equity must have
increased by one thousand dollars. So we Credit
Owner’s Equity. Alternatively,
we could have used a second Method
that’s a bit quicker. We know that in
Double-Entry Bookkeeping there are two
equal and opposite sides to every financial transaction.
Since we’ve already Debited cash in question one
we must have to Credit Owner’s Equity
in order to keep things balanced. In question three
we’re looking at a different transaction. The Car Wash
pays a supplier two hundred dollars in cash.
Which account is Debited? Is it…
A: Accounts Payable or
B: Cash If the Car Wash is
paying a supplier in cash then that means their
cash balance has to go down because they’ve paid it over
to the supplier and their accounts payable
has to go down too because they’re reducing
the amount of money they owe to the supplier.
Accounts payable is a form of liability
that’s the “L” in DEALER which makes it a
normal Credit account. So Credits increase it
and Debits decrease it. Here we want to
decrease accounts payable so the answers “A”
We’ve got to Debit it. In question four
a customer gets their car washed for ten dollars.
They pay On Account with 30 day payment terms.
Which account is Credited? Is it…
A: Revenue B: Cash
or C: Accounts Receivable Here we can eliminate cash
right away because this transaction doesn’t involve cash.
The customer pays the Car Wash On Account
so they still owe the Car Wash ten dollars.
But they have 30 days in order to hand over the money
because they’ve got 30 day credit terms.
So we are left with Revenue
or Accounts Receivable. And this transaction
represents a sale because a service has
been provided to the customer and the
“Revenue Recognition Principle” tells us that we need to recognise
this income now because revenue is recognised
when it’s earned not when cash changes hands.
Revenue is the “R” in DEALER
so it’s a normal Credit account. So Credits increase it
and Debits decrease it. Here we need to increase revenue
so we need to Credit it. Question number five.
The following month the car wash receives the ten dollars
from the customer. Which account is Credited?
Is it… A: Revenue
B: Cash or C: Accounts Receivable
Right off the bat we can remove revenue
because this transaction doesn’t involve revenue.
We’re still applying the Revenue Recognition Principle
so the revenue was recognised back when it was earned
the previous month in question four.
So we’re left with cash and
accounts receivable. Cash is an asset
which is the “A” in DEALER
so Debits increase it and Credits decrease it.
Since the Car Wash has received cash.
Cash needs to be Debited to increase it.
That leaves us with accounts receivable.
In question four the customer owed
the Car Wash ten dollars.
So the Car Wash needed to recognise an account receivable.
Now that the Car Wash has received that ten dollars back.
That balance needs to be reduced down
to NIL. Accounts receivable
are also a form of asset so Debits increase it
and Credits decrease it. Here we want to reduce our
accounts receivable balance. So we need to Credit it.
If you found this video useful give it a LIKE.
Share it, Comment,
Subscribe if you haven’t already. How did you find
these practice questions today? Were they’re too easy?
Were they too hard? I’d love to hear your feedback.
I put out new videos every Monday
here on Accounting Stuff.
See you in the next one! [Music]

100 thoughts on “5 Debit and Credit Practice Questions & Solutions”

  1. Apologies for the terrible handwriting! How did you find these practice questions? Would you like me to do more covering other areas?

  2. I absolutely love love love your videos. Please dont stop!! Your production value and the way you explain things are done really well

  3. Really helpful, would be good if you could produce more test questions. Your videos are really good as I have used most of them to increase my understanding on accounting

  4. After #5 I still wasn't understanding, until you added that last little tidbit about #4 and suddenly everything made sense! Thank you!

  5. men i got all the answer correct but i need explanation between expense and liabilities and also the revenue principle

  6. The given examples are practical. Could you please have few more such examples which covers most of the real time cases in the business?

    Dayakar Reddy
    Hyderabad, India

  7. This was really, really good. Finally a clear way to really sink my brain into the differences of debits and credits. Thank you! Keep making these videos – your great at the explanations, entertaining and fresh!

  8. Thank you so much for making these videos!! I have been educating myself on this topic for awhile and these videos have helped me more than most anything I have found!! Thanks again πŸ™‚

  9. Thank you! Very useful videos. I'm learning English and accountancy at the same time. Your videos are fantastic! Thank you so much!

  10. In question 2 how come cash and accounts payable are both debted? If we have to have balance one side credit and another side debit then if cash and accounts payable is debited then you didn't say what is credited. I am confused. Please help

  11. Hi James, please continue to make more videos. I have found them really useful. Some more problem practice questions would be great!

  12. I am taking financial accounting for the 4th time in grad school. I had to take it 3x (withdrew once). I can actually understand the class now because of your videos. Thank you so much.

  13. Damn, you're the first person who can explain things this clearly. The teachers I had in university did such a poor job, I was told to memorize without any understanding which I just couldn't do.

    I could see you put tons of efforts in your videos, it's always so clear and crisp in the way you present and deliver, truly amazing.

  14. Q5 If Accounts Receivable [A] are credited $10 then what is the opposing debited entry? Is it owners equity [L] which as a Dr increases 10$ when the cash is actually received?

  15. Hay un problema con la teorΓ­a DEALER supuestamente EQUITY (E) Aumenta por el CrΓ©dito pero a la hora de registrarlo en el libro de cuentas no se pone por el dΓ©bito se usaria la cuenta cash o Bank para como contrapartida y establecer el principio de Balance.

  16. Generally, I'm not an accountant but this was relatively simple. Would be great to see more videos with more different questions when the level of complexity arises. Thanks for all your content

  17. Hello AS, I'm quite confuse here.. In DEALER, is the D stands for Dividened or Drawings? The one in my book only stated Drawings and left out dividened but in one of your vids you'd mentioned it as Dividened.. which one is true? Or are they the same thing? Thanks in advance!

  18. the first time I got a only 1 right after seeing the video 2nd time i understood how u were doing it only miss the last question but when you explained why I undestood better

  19. The practice questions helped a lot. Thanks! It probably wouldn't be a bad idea to make practice question videos for every checkpoint (for lack of a better term) in the accounting learning process. Also, more practice questions on subjects you have covered already, because some people (me) need all the help they can get. Then again, I just discovered this channel, so you may have already done that. I dunno.

  20. Man! Your teaching technique is too good to be true!!! :))) If possible could you please make a video clarifying what is chart of accounts? Thank you so much James! πŸ™‚ πŸ™‚ πŸ™‚

  21. you honestly made accounting look soo easy
    btw i loved those mad tunes at the end of the vid
    definately like and subscribe to this channel

  22. I have an envelope of emergency money. Instead of waiting for pay day to come I borrow grocery money a few days before I get paid to buy groceries. Let’s say I take 150 dollars out of the envelope for groceries on Wednesday and pay it back on Friday. How would this look in accounting? Would I have a journal entry for cash or accounts receivable. What about a journal entry for accounts payable?

  23. I never comment on videos but your videos are saving me because I never understood the concepts but your explanations are just amazing THANK YOU SO MUCH

  24. I loved how the music enters.. I didn't quite get the last question because if we credited account receviable which account we did debited? And I think the questions level was just fine. Thank you.

  25. Bro, the best thing I love about your videos are how you get direct into the point without wasting much time, and the way you explain your stuff. Good going mate πŸ‘

  26. Question, how would you record billing a customer for $1,000 for tables rented to date on a journal entry? Thanks for the videos! Love them!!

  27. Thank you so much for this video, I love how you break it down and go through each steps with us! Makes it so much easier to understand. I’ve learnt more with your videos than I have sat in class 😁

  28. It is really not easy to understand clearly accounting from a textbook, but you are making it so much easier ! Please never stop

  29. Your channel is brilliant.

    Can you go over what charter of accounts are needed when setting up a supplement eCommerce business or a physical e-eCommerce business where one formulates their own products please and thank you.

    Another topic I am interested in is how sweat equity comes into play. For example owners of the company aren't getting paid right away but in most cases they should still account for sweat equity so they can get paid for the work they did.

    Another topic I am interested in building core capital and cash reserves.

    Thanks again.

  30. Hi, I'm a bit confused. Shouldn't Question 4 be "Accounts Receivable" since the service was provided but will be paid for in 30 days?

  31. I am a software developer who is a novice in accounting and desire to integrate accounting in my app, having gone through other videos, i must confess that you are the best among all that i have watched, you are a great teacher, you made my work easier,

    thumbs up.

  32. i'm subscribed! these are great videos but what is the very first one to go sequentially? (i know #1) but seems like there are a couple…

  33. James, I wants you to be my accounts teacher dear and you eventually taught me that Accounting has to be done logically like Mathematics.I love you my teacher and Thank you

  34. Best explanation of all time. I'm an Accounting Systems Trainer, but not an Accountant. Your videos are providing me with fresh ways of explaining concepts.

  35. This video as helped me so much! I am in college taking my first accounting class and tomorrow we have our first exam. Before watching this video I didn't know anything. However, after watching just 7 videos @accountingstuff I have learned more in 30 minutes then attending 3 weeks of class. Thank you so much

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