Journal Entries
Recording Transactions
Debiting and crediting appropriate accounts (Cash, Inventory, A/P, etc.).
Questions use standard office and retail business scenarios: rent payments, merchandise purchases on account, equipment acquisitions, early-payment discounts, and month-end adjustments. Chart of Accounts codes are provided for coding questions. Wrong-account traps use accounts with similar names.
What the exam tests
Standard Transaction Identification
Given a common business scenario (paying rent in cash, buying merchandise on account), identify the correct accounts to debit and credit.
Chart-Based Coding
A Chart of Accounts with numeric codes is provided; select the correct code pair for a transaction (e.g., cash purchase of office supplies = debit Supplies 105, credit Cash 101).
End-of-Period Adjusting Entries
Record entries to close the books, such as adjusting Prepaid Rent to reflect the portion actually used during the period.
Complex Asset Acquisitions
Record equipment purchases using multiple payment forms: a cash down payment and a note payable in the same journal entry.
Contra-Account Transactions
Record items that reduce main accounts: Sales Returns and Allowances, Sales Discounts when a customer pays an invoice early.
Error Correction Entries
A transaction was recorded incorrectly; identify the specific correcting entry needed (e.g., insurance expense was debited to Rent Expense).
Valuation and Write-Offs
Record a worthless account under the direct write-off method: debit Bad Debt Expense, credit Accounts Receivable.
Debit/Credit Logic Mastery
Key rules
- ›Debits increase: Assets, Expenses, Dividends (DEAD).
- ›Credits increase: Liabilities, Equity, Revenue (CELR).
- ›Every entry must have equal debit and credit totals.
Common traps
- !Debiting a liability account when a liability increases. Liabilities increase with Credits.
Analytical Discrimination
Key rules
- ›A new machine goes to Property, Plant & Equipment, not Inventory.
- ›Supplies purchased for office use go to Supplies (asset) or Supplies Expense, not Equipment.
- ›On-account purchases credit Accounts Payable; cash purchases credit Cash.
Common traps
- !Coding equipment to Inventory because it was purchased for business use.
Multi-Account Coordination
Key rules
- ›Split entries are valid: a single sale can debit both Cash and Accounts Receivable if payment is partially immediate and partially deferred.
- ›A complex asset purchase may debit Equipment and credit both Cash and Notes Payable.
Common traps
- !Forcing a two-account entry when the transaction clearly involves three accounts.
Contra-Account Recognition
Key rules
- ›Sales Returns and Allowances is debited (contra-revenue). It reduces Net Sales, not the revenue account directly.
- ›Sales Discounts is debited when a customer takes an early-payment discount; A/R is credited for the full invoice; Cash is debited for the net received.
Common traps
- !Debiting Sales Revenue directly instead of the contra-account.
Knowledge of Specific Accounting Methods
Key rules
- ›Accrual Basis: record revenue when earned, expense when incurred, regardless of cash timing.
- ›Cash Basis: record only when cash is received or paid.
- ›Direct Write-Off: Debit Bad Debt Expense, Credit A/R when a receivable is confirmed uncollectible.
Common traps
- !Applying cash-basis timing to an accrual-basis scenario.
Arithmetical Accuracy
Key rules
- ›Calculate the exact deduction (half-year depreciation, 2% early-payment discount) before writing the entry.
- ›Verify debit total = credit total before finalizing any multi-line entry.
Try one
You pay rent for the office building in the amount of $1,250 for the month of June. What is the correct journal entry?
Paying rent in cash increases an expense (debit, per DEAD) and decreases Cash (credit). Since cash leaves now, credit Cash, not Accounts Payable.
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