These accounting practice exercises for beginners show how seven common transactions affect journal entries and the accounting equation. You’ll work through owner funding, equipment, credit sales, collections, prepayments, depreciation, and accrued costs. Each hypothetical exercise includes a question, a worked answer, and a balance check so you can see why total assets must always equal liabilities plus equity.
Accounting foundations to know before you begin
The accounting equation is:
Assets = Liabilities + Equity
Assets are resources a business controls, such as cash, equipment, and amounts customers owe. Liabilities are obligations to outside parties. Equity is the owners’ residual interest after subtracting liabilities from assets.
Each journal entry uses at least one debit and one credit. Debits increase assets and expenses, while credits increase liabilities, equity, and revenue. Expenses reduce equity through net income, even though they aren’t usually posted directly to an equity account during routine bookkeeping.
The seven exercises use a hypothetical consulting company called Clearview Analytics. All amounts are in U.S. dollars (USD), but the exercises don’t address U.S. taxes or jurisdiction-specific reporting rules. The company begins with no assets, liabilities, or equity.
How to approach accounting practice exercises for beginners
Use the same process for every transaction rather than trying to memorize isolated entries:
- Identify the accounts affected.
- Classify each account as an asset, liability, equity, revenue, or expense.
- Decide whether each account increases or decreases.
- Translate those changes into debits and credits.
- Confirm that total debits equal total credits.
- Check that assets still equal liabilities plus equity.
Keep in mind that a journal entry records the effect of a transaction, not necessarily a movement of cash. Credit sales, depreciation, and accrued expenses are all examples of accounting events that can occur without an immediate cash payment.
Seven exercises with worked answers
1. Record an owner’s equity contribution
Hypothetical transaction: The owner contributes USD 20,000 in cash to start Clearview Analytics. In return, the company issues common stock.
Question: Which accounts change, and what journal entry should the company record?
Worked answer: Cash, an asset, increases by USD 20,000. Common stock, an equity account, also increases by USD 20,000.
Debit Cash: USD 20,000
Credit Common Stock: USD 20,000
Equation check: Assets of USD 20,000 equal liabilities of USD 0 plus equity of USD 20,000.
An owner contribution isn’t revenue because it comes from an owner acting as an investor, not from providing goods or services to a customer.
2. Purchase equipment with cash
Hypothetical transaction: Clearview buys computer equipment for USD 6,000 cash.
Question: Does the purchase reduce total assets?
Worked answer: Equipment increases by USD 6,000, while cash decreases by USD 6,000.
Debit Equipment: USD 6,000
Credit Cash: USD 6,000
Equation check: Total assets remain USD 20,000. Their composition changes, but liabilities remain USD 0 and equity remains USD 20,000.
A common beginner mistake is recording the full purchase as an immediate expense. Equipment expected to provide benefits over multiple accounting periods is generally capitalized as an asset and then allocated to expense through depreciation. The applicable capitalization policy depends on the organization and accounting framework.
3. Record a credit sale
Hypothetical transaction: The company completes consulting work worth USD 3,500. It invoices the customer and allows payment later. Assume the work is complete and the revenue recognition conditions are satisfied.
Question: How does the company record revenue when it hasn’t received cash?
Worked answer: Accounts receivable, an asset representing a customer’s unpaid balance, increases. Service revenue also increases, which raises equity through net income.
Debit Accounts Receivable: USD 3,500
Credit Service Revenue: USD 3,500
Equation check: Assets rise from USD 20,000 to USD 23,500. Equity also rises from USD 20,000 to USD 23,500, with liabilities still at USD 0.
This entry illustrates accrual accounting: revenue can be recognized before cash arrives. Businesses often monitor collection speed with measures such as days sales outstanding and its underlying formula.
4. Collect part of a customer balance
Hypothetical transaction: The customer pays USD 2,000 toward the USD 3,500 invoice.
Question: Should Clearview recognize another USD 2,000 of revenue?
Worked answer: No. Revenue was recognized when the completed service was recorded. The collection increases cash and reduces accounts receivable.
Debit Cash: USD 2,000
Credit Accounts Receivable: USD 2,000
Equation check: One asset increases while another decreases, so total assets remain USD 23,500. Liabilities and equity don’t change. The customer still owes USD 1,500.
Confusing cash collection with revenue recognition can cause revenue to be counted twice. This distinction is also important when comparing reported sales with cash flow.
5. Pay an expense in advance
Hypothetical transaction: Clearview pays USD 1,200 for 12 months of insurance coverage beginning next month. Assume each month provides an equal portion of the coverage.
Question: Is the entire payment an insurance expense on the payment date?
Worked answer: No. Because the future coverage hasn’t yet been received, the payment initially creates prepaid insurance, an asset.
Debit Prepaid Insurance: USD 1,200
Credit Cash: USD 1,200
Equation check: Cash falls by USD 1,200 and prepaid insurance rises by the same amount. Total assets remain USD 23,500.
Once one month of coverage has passed, the hypothetical monthly expense would be USD 1,200 ÷ 12 = USD 100. The later adjusting entry would debit Insurance Expense and credit Prepaid Insurance for USD 100. That adjustment isn’t included in the cumulative balances below because coverage begins next month.
6. Record one month of depreciation
Hypothetical transaction: Assume the USD 6,000 equipment has a five-year useful life, no estimated residual value, and uses straight-line depreciation. It has now been available for use for one month.
Question: What is one month’s depreciation, and how is it recorded?
Worked answer: Straight-line depreciation allocates the depreciable amount evenly across the assumed useful life.
Annual depreciation = (USD 6,000 cost − USD 0 residual value) ÷ 5 years = USD 1,200
Monthly depreciation = USD 1,200 ÷ 12 months = USD 100
Debit Depreciation Expense: USD 100
Credit Accumulated Depreciation: USD 100
Equation check: Accumulated depreciation is a contra-asset, meaning it reduces the equipment’s net carrying amount. Total assets fall from USD 23,500 to USD 23,400, and the expense reduces equity to USD 23,400.
Depreciation allocates an asset’s cost; it doesn’t measure its current market value. Useful life, residual value, and depreciation method are accounting estimates or policy choices that may differ in practice.
7. Recognize an accrued expense
Hypothetical transaction: At month-end, employees have earned USD 900 of wages that Clearview will pay next month.
Question: What should the company record before paying the employees?
Worked answer: Wages expense increases because employees have already provided their work. Wages payable, a liability, increases because the payment remains due.
Debit Wages Expense: USD 900
Credit Wages Payable: USD 900
Equation check: Assets remain USD 23,400. Liabilities rise to USD 900, while equity falls from USD 23,400 to USD 22,500 because of the expense. Assets of USD 23,400 therefore equal liabilities of USD 900 plus equity of USD 22,500.
Accrued expenses help place costs in the period when resources or services are consumed rather than waiting for the payment date. Estimating such costs can also support an annual operating plan, although budgets and accounting records serve different purposes.
Cumulative accounting equation check
The table shows the company’s position after each completed exercise. Amounts are hypothetical and stated in USD.
| After exercise | Assets | Liabilities | Equity | Balance check |
|---|---|---|---|---|
| 1. Equity contribution | 20,000 | 0 | 20,000 | 20,000 = 0 + 20,000 |
| 2. Equipment purchase | 20,000 | 0 | 20,000 | 20,000 = 0 + 20,000 |
| 3. Credit sale | 23,500 | 0 | 23,500 | 23,500 = 0 + 23,500 |
| 4. Customer payment | 23,500 | 0 | 23,500 | 23,500 = 0 + 23,500 |
| 5. Prepaid insurance | 23,500 | 0 | 23,500 | 23,500 = 0 + 23,500 |
| 6. Depreciation | 23,400 | 0 | 23,400 | 23,400 = 0 + 23,400 |
| 7. Accrued wages | 23,400 | 900 | 22,500 | 23,400 = 900 + 22,500 |
The final asset balance consists of USD 14,800 cash, USD 1,500 accounts receivable, USD 1,200 prepaid insurance, and USD 5,900 of net equipment after accumulated depreciation. Together, these balances total USD 23,400.
Turn the exercises into a practical learning routine
Redo each transaction without looking at the answer, then prepare a simple trial balance listing every ending account and its debit or credit balance. Your total debits should equal total credits. Next, change one assumption, such as buying equipment on credit or collecting the full customer balance, and calculate the new result.
These exercises simplify real bookkeeping. Actual organizations may need sales taxes, payroll deductions, detailed revenue recognition analysis, materiality thresholds, and account-specific policies. Continuing practice is more useful than memorizing one example, especially when paired with a structured approach to continuing finance education.
Frequently asked questions
Why must debits equal credits?
Equal debits and credits preserve the accounting equation by recording both sides of every transaction. An equal trial balance doesn’t prove that every entry is correct, but an unequal one signals an error.
Is accounts receivable revenue?
No. Accounts receivable is an asset representing money customers owe. Revenue records the value earned from providing goods or services, and the two accounts may increase together in a credit sale.
Why is prepaid insurance an asset?
Prepaid insurance represents coverage the business expects to receive in a future period. It becomes an expense gradually as that coverage is used.
Does depreciation involve a cash payment?
Recording depreciation doesn’t involve a new cash payment. It allocates the cost of an existing long-lived asset across the periods expected to benefit from its use.
What is the difference between accounts payable and an accrued expense?
Both can represent unpaid obligations. Accounts payable commonly results from a supplier invoice, while an accrued expense is often recognized before an invoice or payment has been processed.