Journal entry practice problems: debits and credits, explained

Every transaction a business records starts as a journal entry. Learn which side each account goes on, why the rules work, and how to record three everyday transactions step by step.

What a journal entry is

A journal entry is the first written record of a transaction. It names the accounts that changed, says whether each one is debited or credited, and gives the amount. Bookkeepers later post the entry to the ledger, which keeps a running balance for each account.

"Debit" simply means the left side of an account. "Credit" means the right side. Neither word means good or bad, and neither means "money in" or "money out" on its own. What a debit does depends on the type of account it touches.

Two rules hold for every entry you will ever write:

• Each entry has at least one debit and at least one credit.
• The total of the debits equals the total of the credits.

This is double-entry bookkeeping. Because every entry balances, the whole ledger balances too, and that is what makes errors easier to find.

The debit and credit rules for each account type

Accounts fall into five main types. Learn which side increases each type, and you can record almost any transaction.

The "normal balance" is the side where an account's balance usually sits. Cash normally has a debit balance. Accounts Payable normally has a credit balance. If you ever see Cash with a credit balance, something is wrong: either an error or an overdrawn account.

Why the rules work

The rules come from the accounting equation:

Assets = Liabilities + Owner's Equity

Assets sit on the left of the equation, so they increase on the left side (debit). Liabilities and equity sit on the right, so they increase on the right side (credit).

Revenue and expenses are really parts of equity. Revenue makes the owner's equity grow, so it behaves like equity and increases with a credit. Expenses shrink equity, so they work the opposite way and increase with a debit. Owner's Drawing also shrinks equity, which is why it carries a debit balance even though it sits in the equity section.

Once you see it this way, you don't need to memorise six separate rules. You need one picture: left side of the equation, debit to increase; right side, credit to increase; anything that reduces equity, debit.

Seeing it in a T-account

A T-account is a quick sketch of one ledger account: the account name on top, debits on the left, credits on the right. Picture the Cash T-account for a small business. A $2,730.00 cash sale goes on the left. A $2,500.00 withdrawal by the owner goes on the right. The balance is the difference between the two sides: $230.00, on the debit side, which is where Cash normally sits.

Now picture Service Revenue. Every sale is written on the right, and the balance grows on the right. You rarely see a debit in a revenue account during the period. That is a useful warning sign: if your entry debits a revenue account for an ordinary sale, the sides are probably reversed.

Thinking in T-accounts also explains why the totals must match. Every entry adds the same amount to the left sides of some accounts as it adds to the right sides of others. Add up every account and the two sides agree, which is exactly what a trial balance checks.

A four-question method for any transaction

When you face a new transaction, ask these questions in order:

1. Which accounts changed? Look for what the business received and what it gave up or now owes.
2. What type is each account? Asset, liability, equity, revenue or expense.
3. Did each one go up or down?
4. So is it a debit or a credit? Use the table above.

Then check that the debits equal the credits. If they don't, a line is missing or an amount is wrong.

Worked example 1: a cash sale

Juniper Landscaping provided services to a customer for $2,730.00 in cash.

1. Which accounts changed? The business received cash, so Cash changed. It earned that cash by doing work, so Service Revenue changed.
2. What type is each? Cash is an asset. Service Revenue is revenue.
3. Up or down? Cash went up by $2,730.00. Service Revenue went up by $2,730.00.
4. Debit or credit? An asset increases with a debit, so debit Cash. Revenue increases with a credit, so credit Service Revenue.

Debits of $2,730.00 equal credits of $2,730.00, so the entry balances. By convention, the debit line is written first.

Worked example 2: a sale on account

Harbor Bakery billed a customer $7,830.00 for services, payable in 30 days.

No cash has arrived yet. "Payable in 30 days" means the customer owes the money, so the business has a receivable. Accounts Receivable is an asset, and it went up, so it is debited. The work is done, so the revenue is earned now, even though payment comes later. Service Revenue is credited.

When the customer pays in 30 days, a second entry will debit Cash and credit Accounts Receivable. Revenue is not recorded again, because it was already earned.

Some transactions need more than two lines. If a business buys equipment and pays part in cash and owes the rest, it debits Equipment for the full cost and credits both Cash and a payable. That is called a compound entry. The rule doesn't change: total debits equal total credits.

Worked example 3: an owner withdrawal

The owner of Juniper Landscaping withdrew $2,500.00 in cash for personal use.

Cash is an asset, and it went down, so it is credited. The money went to the owner, not to running the business, so it is not an expense. Instead it reduces the owner's equity through the Owner's Drawing account. Drawing increases with a debit.

Common mistakes and how to avoid them

These are the mistakes the exercises catch most often. Each one has a clear fix.

Reversing the debits and credits

The most common slip is putting every line on the wrong side: crediting Cash for $2,730.00 and debiting Service Revenue in the cash sale. The entry still balances, which is why the mistake is easy to miss. But it says the business lost cash and reduced its revenue, the opposite of what happened.

The fix is to go back to question 3: did the account go up or down? Cash came in, so it went up, and assets go up with a debit. In the withdrawal, the reverse is true: Cash went out, so it is credited, and the drawing account goes up with a debit.

Leaving out a line

Sometimes a learner records only one side, for example a debit to Cash of $2,730.00 with no credit. The entry then has $2,730.00 of debits and $0.00 of credits. Every entry needs at least one debit and one credit of equal total. If your totals don't match, look for the account you forgot. In a compound entry, the missing line is often the last credit: the cash paid or the amount still owed.

Treating an owner withdrawal as an expense

It is tempting to debit an expense account when cash leaves the business. But expenses are costs of earning revenue. An owner taking money home earns nothing for the business. Debit Owner's Drawing, not an expense. Recording it as an expense would understate the business's profit by $2,500.00 in the example above.

How to check your own entry

• Totals match. Add the Debit column and the Credit column. They must be equal.
• Directions make sense. Read the entry back in plain English: "Cash went up, revenue went up." Does that match the story?
• Cash only moves when money moves. If the words "on account" or "payable in 30 days" appear, look for a receivable or a payable instead of Cash.
• No owner items in expenses. Withdrawals go to Owner's Drawing; investments go to Owner's Capital.

Where to go next

Once the rules feel natural, move on to transactions with more moving parts. Sales and purchase journal entries covers buying inventory and recording cost of goods sold. Trial balance practice shows how posted entries prove that debits equal credits across the whole ledger. Later, adjusting entries update accounts at the end of each period.