Debits and Credits Practice Quiz
Debits and Credits: 20 Practice Questions for Beginners
So, you think you know Debits and Credits? Let’s put your knowledge to the test!
In this video, I’ve prepared 20 multiple-choice quiz questions to test your knowledge of Debits, Credits and Double-Entry Accounting.
Here are twenty multiple-choice questions on Debits and Credits. We’ll start simple, but things will get trickier as we go. So play along, keep track of your score and don’t forget to share it in the comments at the end.
In Double-Entry Accounting, every transaction ______ . Can you fill in the blank?
a) Affects two or more accounts
b) Affects only one account
c) Is recorded only when cash changes hands
d) Can be recorded without balancing debits and credits
Debits and credits are best described as ____ . Can you fill in the blank?
a) Good and bad
b) The same as adding and subtracting
c) Words showing the duality of transactions
d) Random labels with no meaning
Debits are recorded on which side of a ledger?
a) Top
b) Bottom
c) Left
d) Right
Which side of a ledger are Credits recorded on?
a) Top
b) Bottom
c) Left
d) Right
A debit increases the balance of which type of account?
a) Assets
b) Liabilities
c) Equity
d) Revenue
A credit increases which type of account?
a) Assets
b) Dividends
c) Expenses
d) Liabilities
Do you debit or credit a Cash account to increase it?
a) Debit
b) Credit
Do you debit or credit Cost of Sales to decrease it?
a) Debit
b) Credit
Do you debit or credit Sales Revenue to increase it?
a) Debit
b) Credit
Do you debit or credit Retained Earnings to increase it?
a) Debit
b) Credit
Do you debit or credit Dividends to decrease it?
a) Debit
b) Credit
Do you debit or credit "Accrued Expenses" to decrease it?
a) Debit
b) Credit
A business provides services to a client on credit. Which account should they debit?
a) Cash
b) Unearned Revenue
c) Service Revenue
d) Accounts Receivable
A business pays a supplier for inventory that was originally purchased on account. Which account is credited?
a) Accounts Payable
b) Cash
c) Inventory
d) Revenue
A business records depreciation on its equipment. Which account should they credit?
a) Equipment
b) Accumulated Depreciation
c) Depreciation Expenses
d) Cash
A business writes off an uncollectible account that wasn’t provided for. Which account is debited?
a) Accounts Receivable
b) Cash
c) Allowance for Doubtful Accounts
d) Bad Debt Expense
A business provides services to a client but hasn’t billed them by the end of the month. Which account should they debit?
a) Cash
b) Service Revenue
c) Accrued Revenue
d) Unearned Revenue
A business uses electricity but hasn’t received the bill by the end of the month. Which account should they credit?
a) Accrued Expenses
b) Utility Expenses
c) Cash
d) Prepaid Expenses
When closing a revenue account at the end of an accounting period, which account is credited?
a) Revenue
b) Income Summary
c) Accounts Payable
d) Cash
A business sells inventory for $500 cash. It originally cost $300. Which accounts are debited?
a) Cash by $500 and Inventory by $300
b) Cash by $500 and Revenue by $300
c) Cash by $500 and Cost of Goods Sold by $300
d) Revenue by $500 and Inventory by $300
Bonus Question! The main purpose of which report is to check that Total Debits equal Total Credits?
a) Balance Sheet
b) Trial Balance
c) Income Statement
d) Cash Flow Statement
Scroll down to see the answers.
Debits and Credits Cheat Sheet
My Debit and Credit Cheat Sheet summarizes all the key information you need to know. You can download it here:
Debit and Credit Practice Answers
Here are the answers:
a) Affects two or more accounts. In Double-Entry Accounting, there are two equal and opposite sides to every transaction. This ensures that the accounting equation is kept in balance.
c) Words showing the duality of transactions. Debits and Credits are words used to reflect the double-sided nature of financial transactions. Every entry has to balance which means Total Debits have to equal Total Credits.
c) Left. Debits are always recorded on the left side of a ledger or a T-account. This format is used worldwide to avoid confusion.
d) Right. Debits go on the left and Credits go on the right.
a) Assets are represented by the "A" in DEALER. This means they're Normal Debit Accounts, so debits increase them and credits decrease them.
d) Liabilities are represented by the "L" in DEALER, which means they're Normal Credit Accounts. So credits increase Liabilities and debits decrease them.
a) Debit. Cash is a type of Asset, so it's a Normal Debit Account. So you'd debit a Cash account to increase it.
b) Credit. Cost of Sales is type of Expense, represented by the first E in DEALER, so it's a Normal Debit Account. This means you credit Cost of Sales to decrease it.
b) Credit. Sales Revenue is a type of Revenue. It's represented by the R in DEALER so it's a Normal Credit Account. This means you credit Sales Revenue to increase it.
b) Credit. Retained Earnings is a form of Equity, represented by the second E in DEALER. So it's a Normal Credit Account and credits increase it.
b) Credit. Dividends is the D in DEALER, so it's a Normal Debit Account. That means credits decrease Dividends.
a) Debit. Accrued Expenses is an Adjusting Entry account that you need to watch out for. It's a type of Liability, so it's a Normal Credit Account. This means you would debit Accrued Expenses to decrease it.
d) Accounts Receivable. When services are provided 'on credit', the client owes the business money. So Accounts Receivable (which is an Asset) is debited to record the amount due. The other side of the transaction is a credit to Service Revenue to recognise the income earned.
b) Cash. When the business pays its supplier, Cash (an asset) is credited to reflect the outflow of money. The other side of the entry is a debit to Accounts Payable, which reduces the liability owed to the supplier.
b) Accumulated Depreciation. Depreciation reduces the book value of equipment over time. But instead of crediting the asset directly, we credit Accumulated Depreciation. This is a contra-asset account which runs against the flow of Fixed Assets on the Balance Sheet. The other side of this transaction is a debit to Depreciation Expenses which records the cost on the Income Statement.
d) Bad Debt Expense. If the bad debt hasn't been provided for, then business the business should debit the Bad Debt Expense account to record the cost on the Income Statement. The other side of the entry is a credit to Accounts Receivable which reduces Assets on the Balance Sheet.
c) Accrued Revenue. The business should debit Accrued Revenue to increase Assets on the Balance Sheet. This reflects the Unbilled Revenue owed to them by the client. The credit entry is to Service Revenue, to record the income earned on the Income Statement.
a) Accrued Expenses. They haven't received a bill, so they should credit Accrued Expenses to increase Liabilities on the Balance Sheet. This reflects the amount they expect to owe. On the other side, they should debit Utility Expenses to record the cost on the Income Statement.
b) Income Summary. When posting Closing Entries, we debit revenue accounts to clear them down to zero. Their balances are transferred to the Income Summary account which is credited to increase it. This account is then closed to Retained Earnings.
c) Cash by $500 and Cost of Goods Sold by $300. We debit Cash by the sale amount of $500 to increase Assets on the Balance Sheet. We also debit Cost of Goods Sold by the book value of the inventory of $300 to record the cost on the Income Statement. On the flip side, we credit Revenue by $500 and Inventory by $300.
b) The Trial Balance shows the balances of all accounts in the General Ledger at a point in time. It helps us check that Total Debits equal Total Credits.
How many did you get right? Let us know in the comments below.
Debit & Credit Video Tutorial
In this video, I'll attempt to explain Debits & Credits in less than two minutes. You'll also learn my number one Accounting Hack... DEALER.
Debits and Credits are words that we use to reflect the double-sided nature of financial transactions. If you're new to Accounting, these words can seem a little counterintuitive. In this video, I’ll explain what these terms mean in plain english.