The rules in one minute
Every journal entry has at least one debit and at least one credit, and the total of the debits must equal the total of the credits. A debit is an amount on the left side of an account. A credit is an amount on the right side. Neither word means good or bad. They are just left and right.
Assets, expenses and the owner's withdrawals account increase with a debit and decrease with a credit. Liabilities, owner's capital and revenue increase with a credit and decrease with a debit.
In the accounts used below: Cash is an asset, so a debit raises it and a credit lowers it. Accounts Receivable is an asset, so it works the same way. Equipment and Supplies are assets too. Accounts Payable is a liability, so a credit raises it and a debit lowers it. Owner's Capital and Service Revenue are raised by credits. Rent Expense, Salaries Expense and Owner's Withdrawals are raised by debits.
The business and the ten transactions
Clearwater Window Cleaning is an invented business with one owner. It starts with nothing and has the ten transactions below, in this order. For each one, write the journal entry with the account names and amounts. Do not look at the answers yet.
Problem 1. The owner invests 20,000 in cash to start the business.
Problem 2. The business buys ladders and a pressure washer for 6,000 and agrees to pay the supplier later.
Problem 3. The business cleans windows and is paid 3,500 in cash right away.
Problem 4. The business cleans windows for a customer and bills 2,800 to be paid later.
Problem 5. The business pays 1,200 in cash for this month's rent.
Problem 6. A customer pays 1,800 of the 2,800 billed in problem 4.
Problem 7. The business pays 2,000 of the 6,000 it owes the equipment supplier.
Problem 8. The owner takes 1,500 in cash out of the business for personal use.
Problem 9. The business buys cleaning supplies for 450 in cash.
Problem 10. The business pays employee salaries of 2,400 in cash.
A simple method for any transaction
Ask four questions in order. Which accounts are touched? What type is each one: asset, liability, owner's capital, revenue, expense or withdrawals? Does each account go up or down? Then use the rules to turn up or down into a debit or a credit.
Take problem 3 as an example. Cash is touched and it goes up, and cash is an asset, so debit Cash. Service Revenue is touched and it goes up, and revenue goes up with a credit, so credit Service Revenue. The amounts are equal, so the entry balances.
Do not worry about the order of the lines, but the usual habit is to list the debit first and the credit second.
Answers
Problem 1: Debit Cash 20,000 / Credit Owner's Capital 20,000. An asset and the owner's capital both rise.
Problem 2: Debit Equipment 6,000 / Credit Accounts Payable 6,000. An asset rises and so does a liability, because nothing was paid yet.
Problem 3: Debit Cash 3,500 / Credit Service Revenue 3,500. Cash is received at the time of the work.
Problem 4: Debit Accounts Receivable 2,800 / Credit Service Revenue 2,800. The revenue is earned now even though the cash comes later.
Problem 5: Debit Rent Expense 1,200 / Credit Cash 1,200. An expense rises and an asset falls.
Problem 6: Debit Cash 1,800 / Credit Accounts Receivable 1,800. No new revenue here, because it was recorded in problem 4. One asset rises and another falls.
Problem 7: Debit Accounts Payable 2,000 / Credit Cash 2,000. The liability falls and so does cash.
Problem 8: Debit Owner's Withdrawals 1,500 / Credit Cash 1,500. A withdrawal is not an expense. It reduces the owner's stake in the business.
Problem 9: Debit Supplies 450 / Credit Cash 450. Supplies are an asset until they are used up.
Problem 10: Debit Salaries Expense 2,400 / Credit Cash 2,400. An expense rises and cash falls.
Balances after all ten entries
If you post the entries to accounts, you should end with these balances. Cash: 17,750 debit, which is 20,000 plus 3,500 plus 1,800 less 1,200, 2,000, 1,500, 450 and 2,400. Accounts Receivable: 1,000 debit, which is 2,800 less 1,800. Supplies: 450 debit. Equipment: 6,000 debit. Accounts Payable: 4,000 credit, which is 6,000 less 2,000. Owner's Capital: 20,000 credit. Service Revenue: 6,300 credit, which is 3,500 plus 2,800. Owner's Withdrawals: 1,500 debit. Rent Expense: 1,200 debit. Salaries Expense: 2,400 debit.
Add the debit balances: 17,750 plus 1,000 plus 450 plus 6,000 plus 1,500 plus 1,200 plus 2,400 equals 30,300. Add the credit balances: 4,000 plus 20,000 plus 6,300 equals 30,300. The two totals match, which is what a trial balance should show.
How to check your work
First, check each entry on its own. The debit amount and the credit amount must be the same. If they are not, the entry is wrong before you even look at the accounts.
Second, check the grand totals. Add every debit in your ten entries and every credit. Both totals should be 41,650. If you got a different total, find the entry where your amount differs from the problem.
Third, check direction. For each entry, say out loud what went up and what went down. Problem 6 is a good test: if you credited Service Revenue again, you counted the same sale twice.
Fourth, check the side of each account. An asset or expense with a credit balance, or a liability or revenue account with a debit balance, usually means a debit and credit were swapped somewhere.
Fifth, compare the cash balance. Only problems 1, 3, 5, 6, 7, 8, 9 and 10 touch cash, so your Cash account should have exactly eight lines and end at 17,750.
Mistakes beginners make
Treating a debit as always meaning money out. A debit to Cash means money came in. It only looks backwards until the rule for each account type becomes automatic.
Recording a sale on account as cash. In problem 4 no money has arrived yet, so the debit goes to Accounts Receivable, not Cash.
Calling the owner's withdrawal an expense. It does not reduce profit. It reduces the owner's equity directly.
Recording the payment of a bill as an expense. In problem 7 the cost was already recorded as equipment, so paying the supplier only reduces the liability.
Where to practice next
Once these feel easy, redo them without notes, then make up your own set by changing the amounts. If you want a spreadsheet that posts your entries and builds the trial balance for you, the Accounting Student Study Workbook toolkit on this site is built for that. A real company's entries follow the same debit and credit logic, just with more accounts and more lines.
Common questions
Do the debits and credits always have to be equal?
Yes. Every journal entry must have total debits equal to total credits. If an entry does not balance, something was left out or an amount was copied wrongly.
Why is revenue recorded when the customer has not paid yet?
In accrual accounting, revenue is recorded when the work is done, not when the cash arrives. That is why problem 4 uses Accounts Receivable.
Can I use these problems for an exam?
They are good for practice, but your course may use different account names or a different format. Check your textbook and your instructor's instructions, and use this page as extra practice only.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.