A journal entry is a record of transactions that includes the date of each transaction, the account numbers, account names, and amounts to be debited and credited. When an accountant looks at a journal entry, she can decipher what happened in that transaction.

Here are a couple of practice questions to test whether you can translate a journal entry into English.

Practice questions

  1. A company records the following journal entry: cash, $5,000; sales revenue, $5,000. Provide a narrative description for the transaction.

  2. A company records the following journal entry: cost of goods sold, $5,000; inventory, $5,000. Provide a narrative description for the transaction.

Answers and explanations

  1. The company made a $5,000 cash sale.

    Debit to cash increases cash. Therefore, cash was received. Credit to revenues increases revenues, so a sale was made.

  2. The company sold $5,000 of product and recorded a decrease in inventory and an increase in cost of goods sold.

    Credit to inventory decreases the balance and a debit to an expense (cost of goods sold) increases the amount of the expense. Thus, the company sold $5,000 of its inventory.

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About This Article

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About the book authors:

Kenneth Boyd is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance. Kenneth has worked as a CPA, Auditor, Tax Preparer, and College Professor. He is the author of CPA Exam For Dummies. Kate Mooney has been teaching accounting to both undergraduates and MBA students at St. Cloud State University since 1986, after earning her PhD from Texas A & M University. She is a licensed CPA in Minnesota and is a member of the State Board of Accountancy.

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