Decipher Accounting Journal Entries — Practice Questions

By Kenneth Boyd, Kate Mooney

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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