Mastering Debits and Credits: 30 Essential Accounting Problems and Solutions [With PDF]
Understanding the concept of debits and credits is crucial for anyone diving into the world of accounting. These foundational principles help maintain balance in the accounting equation, ensuring that financial statements are accurate and reliable.
Whether you’re an accounting student, a beginner, or a professional looking to refresh your knowledge, practicing real-world problems will help solidify your grasp of debits and credits.
In this post, we’ve compiled 30 essential debit and credit problems with solutions, ranging from basic to complex scenarios, to enhance your learning experience.
What are Debits and Credits?
In double-entry bookkeeping, debits and credits are used to record financial transactions. Each transaction affects at least two accounts, and debits and credits must always balance.
- Debits increase assets and expenses while decreasing liabilities and equity.
- Credits increase liabilities, equity, and revenue while decreasing assets and expenses.
Why Debits and Credits Matter in Accounting
Every transaction that a business records follows the debit and credit rules. Correctly applying these rules ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.
Mastering these concepts is essential for preparing accurate financial statements, including balance sheets, income statements, and cash flow statements.
30 Debit and Credit Problems with Solutions
Here is a collection of 30 accounting problems that will help you practice and understand how debits and credits work in various real-life scenarios. We’ve included explanations to guide you through each problem.
1. Purchase of Office Equipment
Problem:
The company purchases office equipment worth $3,000 in cash. Identify the debit and credit.
Solution:
- Debit: Office Equipment (Asset) +$3,000
- Credit: Cash (Asset) -$3,000
Explanation:
The company receives office equipment, an asset that increases, so it is debited. Cash, another asset, decreases, so it is credited.
2. Borrowing from the Bank
Problem:
The company takes a loan of $10,000 from the bank. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$10,000
- Credit: Loan Payable (Liability) +$10,000
Explanation:
Cash is increasing, so it is debited. At the same time, a liability (Loan Payable) is created, which is credited.
3. Payment of Rent
Problem:
The company pays $2,000 in rent for the month. Identify the debit and credit.
Solution:
- Debit: Rent Expense (Expense) +$2,000
- Credit: Cash (Asset) -$2,000
Explanation:
Rent Expense increases (debit), reducing equity, and Cash decreases (credit), which reduces assets.
4. Owner’s Capital Investment
Problem:
The owner invests $15,000 cash into the business. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$15,000
- Credit: Owner’s Equity (Equity) +$15,000
Explanation:
Cash is increasing, so it is debited. Owner’s equity increases, so it is credited.
5. Sale of Goods on Credit
Problem:
The company sells goods worth $5,000 on credit. Identify the debit and credit.
Solution:
- Debit: Accounts Receivable (Asset) +$5,000
- Credit: Sales Revenue (Revenue) +$5,000
Explanation:
Accounts Receivable is an asset that increases (debit), and Sales Revenue increases (credit).
6. Payment to a Supplier
Problem:
The company pays $4,000 to a supplier to settle an accounts payable balance. Identify the debit and credit.
Solution:
- Debit: Accounts Payable (Liability) -$4,000
- Credit: Cash (Asset) -$4,000
Explanation:
The liability (Accounts Payable) decreases, so it is debited. Cash also decreases, so it is credited.
7. Receipt of Cash for Services Provided
Problem:
The company receives $7,000 in cash for services provided. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$7,000
- Credit: Service Revenue (Revenue) +$7,000
Explanation:
Cash increases, so it is debited. Service revenue is earned, so it is credited.
8. Purchase of Inventory on Credit
Problem:
The company purchases inventory worth $12,000 on credit. Identify the debit and credit.
Solution:
- Debit: Inventory (Asset) +$12,000
- Credit: Accounts Payable (Liability) +$12,000
Explanation:
Inventory is an asset that increases (debit), and a liability (Accounts Payable) is created (credit).
9. Utility Bill Payment
Problem:
The company pays a utility bill of $800. Identify the debit and credit.
Solution:
- Debit: Utilities Expense (Expense) +$800
- Credit: Cash (Asset) -$800
Explanation:
Utilities Expense increases (debit), which reduces equity, and Cash decreases (credit), reducing assets.
10. Prepaid Insurance Purchase
Problem:
The company pays $1,200 in advance for insurance coverage for the next six months. Identify the debit and credit.
Solution:
- Debit: Prepaid Insurance (Asset) +$1,200
- Credit: Cash (Asset) -$1,200
Explanation:
Prepaid Insurance is an asset that increases (debit), and Cash, another asset, decreases (credit).
11. Dividend Payment to Owners
Problem:
The company pays $5,000 in dividends to the owners. Identify the debit and credit.
Solution:
- Debit: Dividends (Equity) +$5,000
- Credit: Cash (Asset) -$5,000
Explanation:
Dividends decrease equity (debit), and Cash decreases (credit).
12. Accrued Interest Expense
Problem:
The company accrues $1,500 of interest expense that it has not yet paid. Identify the debit and credit.
Solution:
- Debit: Interest Expense (Expense) +$1,500
- Credit: Interest Payable (Liability) +$1,500
Explanation:
Interest Expense increases (debit), reducing equity, and a liability (Interest Payable) is created (credit).
13. Depreciation of Office Equipment
Problem:
The company records $600 of depreciation for office equipment. Identify the debit and credit.
Solution:
- Debit: Depreciation Expense (Expense) +$600
- Credit: Accumulated Depreciation (Contra-Asset) +$600
Explanation:
Depreciation Expense increases (debit), reducing equity, and Accumulated Depreciation is a contra-asset that increases (credit), reducing the asset value.
14. Purchase of Land for Cash
Problem:
The company purchases land worth $30,000 in cash. Identify the debit and credit.
Solution:
- Debit: Land (Asset) +$30,000
- Credit: Cash (Asset) -$30,000
Explanation:
Land is an asset that increases (debit), and Cash decreases (credit).
15. Interest Income Earned
Problem:
The company earns $1,000 in interest income, which is credited to its bank account. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$1,000
- Credit: Interest Income (Revenue) +$1,000
Explanation:
Cash increases (debit), and interest income is earned (credit).
16. Issuance of Common Stock
Problem:
The company issues 1,000 shares of common stock at $10 per share for cash. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$10,000
- Credit: Common Stock (Equity) +$10,000
Explanation:
Cash increases as the company receives payment (debit), and Common Stock, which represents equity, increases (credit).
17. Recording Salaries Payable
Problem:
The company records $3,500 of salaries that are due to employees but have not been paid yet. Identify the debit and credit.
Solution:
- Debit: Salaries Expense (Expense) +$3,500
- Credit: Salaries Payable (Liability) +$3,500
Explanation:
Salaries Expense is recorded as an increase (debit), reducing equity, while a liability (Salaries Payable) is created (credit).
18. Sale of Goods for Cash
Problem:
The company sells goods worth $8,000 in cash. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$8,000
- Credit: Sales Revenue (Revenue) +$8,000
Explanation:
Cash is increasing (debit), and Sales Revenue increases (credit), reflecting the income earned from the sale.
19. Purchase of Furniture on Credit
Problem:
The company purchases furniture worth $6,000 on credit. Identify the debit and credit.
Solution:
- Debit: Furniture (Asset) +$6,000
- Credit: Accounts Payable (Liability) +$6,000
Explanation:
Furniture, as an asset, increases (debit), while the company incurs a liability (Accounts Payable), which is credited.
20. Received Payment for Accounts Receivable
Problem:
The company receives $4,500 from a customer for an outstanding accounts receivable balance. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$4,500
- Credit: Accounts Receivable (Asset) -$4,500
Explanation:
Cash is increasing (debit), while Accounts Receivable decreases (credit) because the customer has paid.
21. Utility Bill Accrual
Problem:
The company accrues a utility bill of $1,200, which it has not yet paid. Identify the debit and credit.
Solution:
- Debit: Utilities Expense (Expense) +$1,200
- Credit: Utilities Payable (Liability) +$1,200
Explanation:
Utilities Expense increases (debit), reducing equity, while a liability (Utilities Payable) is created (credit).
22. Withdrawal of Cash by Owner
Problem:
The owner withdraws $5,000 in cash for personal use. Identify the debit and credit.
Solution:
- Debit: Owner’s Drawing (Equity) +$5,000
- Credit: Cash (Asset) -$5,000
Explanation:
Owner’s Drawing increases (debit), reducing equity, and Cash decreases (credit).
23. Prepayment for Advertising
Problem:
The company pays $2,500 in advance for an advertising campaign. Identify the debit and credit.
Solution:
- Debit: Prepaid Advertising (Asset) +$2,500
- Credit: Cash (Asset) -$2,500
Explanation:
Prepaid Advertising, an asset, increases (debit), while Cash decreases (credit).
24. Repayment of a Loan
Problem:
The company repays $7,000 of a loan, including $500 in interest. Identify the debit and credit.
Solution:
- Debit: Loan Payable (Liability) -$6,500
- Debit: Interest Expense (Expense) +$500
- Credit: Cash (Asset) -$7,000
Explanation:
The Loan Payable decreases (debit) by $6,500, Interest Expense is recorded (debit), and Cash decreases (credit) by $7,000.
25. Accrued Wages
Problem:
At the end of the month, the company accrues wages of $4,200 for employees. Identify the debit and credit.
Solution:
- Debit: Wages Expense (Expense) +$4,200
- Credit: Wages Payable (Liability) +$4,200
Explanation:
Wages Expense increases (debit), reducing equity, and Wages Payable is a liability that increases (credit).
26. Write-off of Bad Debt
Problem:
The company writes off $1,000 in accounts receivable that is uncollectible. Identify the debit and credit.
Solution:
- Debit: Bad Debt Expense (Expense) +$1,000
- Credit: Accounts Receivable (Asset) -$1,000
Explanation:
Bad Debt Expense increases (debit), reducing equity, and Accounts Receivable decreases (credit).
27. Accrued Interest Income
Problem:
The company accrues $300 of interest income that it has earned but not yet received. Identify the debit and credit.
Solution:
- Debit: Interest Receivable (Asset) +$300
- Credit: Interest Income (Revenue) +$300
Explanation:
Interest Receivable, an asset, increases (debit), and Interest Income is earned (credit).
28. Payment for Office Supplies
Problem:
The company pays $450 for office supplies. Identify the debit and credit.
Solution:
- Debit: Office Supplies (Expense) +$450
- Credit: Cash (Asset) -$450
Explanation:
Office Supplies Expense increases (debit), reducing equity, and Cash decreases (credit).
29. Dividend Declared But Not Paid
Problem:
The company declares a $5,000 dividend to be paid next month. Identify the debit and credit.
Solution:
- Debit: Retained Earnings (Equity) -$5,000
- Credit: Dividends Payable (Liability) +$5,000
Explanation:
Retained Earnings, which is part of equity, decreases (debit), and Dividends Payable, a liability, increases (credit).
30. Sale of Asset at a Loss
Problem:
The company sells equipment with a book value of $10,000 for $7,000. Identify the debit and credit.
Solution:
- Debit: Cash (Asset) +$7,000
- Debit: Loss on Sale of Equipment (Expense) +$3,000
- Credit: Equipment (Asset) -$10,000
Explanation:
Cash increases (debit), the loss is recorded (debit), and Equipment decreases (credit) as it is sold.
Key Takeaways
- Debits and credits are integral to the double-entry bookkeeping system.
- Correctly applying debits and credits helps keep the accounting equation balanced.
- Practicing various transactions will solidify your understanding of how these entries affect different accounts.
Why Practice Accounting Problems?
Solving accounting problems is the best way to reinforce your understanding of debit and credit principles. By practicing real-world scenarios, you’ll be able to handle various financial transactions with confidence.
These 30 problems cover a wide range of situations, from simple cash payments to more complex accruals and adjustments.
Conclusion
Mastering debits and credits is fundamental to becoming proficient in accounting. The problems and solutions provided above offer a comprehensive learning resource for beginners and professionals alike.
By practicing these scenarios, you’ll develop a deeper understanding of how transactions affect different accounts and maintain the integrity of the accounting equation.
If you’re looking for more accounting resources, quizzes, or detailed tutorials, explore the rest of our website for free learning tools designed to help you succeed in your accounting journey.
Explore more practical examples and resources on our Accounting Challenges page.
