Practice lab · Beginner to intermediate
From transactions to a trial balance
A complete small-business exercise with journal entries, account balances and explanations. Try each stage before opening its solution.
You will learn to: identify affected accounts, record balanced entries, calculate ledger balances and prepare an unadjusted trial balance.
Before you begin: Review double entry and account classifications. Allow about 25–40 minutes, depending on your experience.
The scenario
A sole proprietor starts Clear Books Services. Record the following transactions in dollars. There are no opening balances. Ignore tax, interest, depreciation and other adjusting entries. Supplies remain unused at the end of the exercise. These assumptions keep the focus on basic recording.
- The owner contributes $5,000 cash.
- The business borrows $2,000 cash from a bank.
- It buys equipment for $1,200 cash.
- It buys unused supplies for $200 cash.
- It earns and receives $800 cash for services.
- It pays $300 rent for the current period.
- It provides $600 of services on credit; the customer has not paid yet.
Part 1: Record the journal entries
For each transaction, write the debit account, the credit account and the amount. Then explain the effect on assets, liabilities and equity.
Show the seven journal entries
- Debit Cash $5,000; credit Owner’s Capital $5,000. Assets and owner’s equity both increase. An owner contribution is not service revenue.
- Debit Cash $2,000; credit Bank Loan Payable $2,000. Assets and liabilities increase. Borrowing is not revenue.
- Debit Equipment $1,200; credit Cash $1,200. One asset increases and another decreases. Total assets do not change.
- Debit Supplies $200; credit Cash $200. Unused supplies are an asset in this exercise. Total assets do not change.
- Debit Cash $800; credit Service Revenue $800. Assets and revenue increase; revenue increases equity through profit.
- Debit Rent Expense $300; credit Cash $300. Cash decreases and an expense reduces profit and equity.
- Debit Accounts Receivable $600; credit Service Revenue $600. Revenue is earned even though cash has not yet been collected. Receivables increase.
Each entry has equal total debits and credits. Debit does not always mean an increase: it increases assets and expenses here, while credit increases liabilities, capital and revenue.
Part 2: Calculate account balances
List all eight accounts used above. Add increases and subtract decreases within each account. Give each balance its debit or credit side.
Show the ledger balances
Cash = $5,000 + $2,000 − $1,200 − $200 + $800 − $300 = $6,100 debit.
- Accounts Receivable: $600 debit
- Equipment: $1,200 debit
- Supplies: $200 debit
- Rent Expense: $300 debit
- Bank Loan Payable: $2,000 credit
- Owner’s Capital: $5,000 credit
- Service Revenue: $1,400 credit ($800 + $600)
There are eight accounts in total: cash plus the seven accounts listed above.
Part 3: Prepare an unadjusted trial balance
Place each balance in the correct column. What is the total on each side?
Show the trial balance
| Account | Debit ($) | Credit ($) |
|---|---|---|
| Cash | 6,100 | — |
| Accounts Receivable | 600 | — |
| Equipment | 1,200 | — |
| Supplies | 200 | — |
| Rent Expense | 300 | — |
| Bank Loan Payable | — | 2,000 |
| Owner’s Capital | — | 5,000 |
| Service Revenue | — | 1,400 |
| Total | 8,400 | 8,400 |
The trial balance checks equality of debit and credit balances. It does not prove that all entries are correct. An omitted transaction or an entry to the wrong account can leave the totals equal.
Part 4: Check the accounting equation
Calculate total assets, liabilities and ending equity. Remember that the owner contribution and earned profit are different sources of equity.
Show the equation and simplified profit calculation
Total assets = Cash $6,100 + Accounts Receivable $600 + Equipment $1,200 + Supplies $200 = $8,100.
Liabilities = Bank Loan Payable $2,000.
Under this exercise’s assumptions, profit = Service Revenue $1,400 − Rent Expense $300 = $1,100. Ending equity = Capital $5,000 + Profit $1,100 = $6,100. There are no drawings.
$8,100 assets = $2,000 liabilities + $6,100 equity.
This is a simplified reconciliation before depreciation, supplies usage and any other period-end adjustments. It is not a complete set of financial statements.
Challenge: The customer pays $400
After the seven transactions, the credit customer pays $400. What entry is required? Does this payment create more service revenue?
Show the challenge answer
Debit Cash $400; credit Accounts Receivable $400. Cash becomes $6,500 and receivables become $200. Total assets stay at $8,100. No additional revenue is recorded because the service revenue was recorded when it was earned in transaction 7.
Common mistakes to watch for
- Recording the loan as revenue instead of a liability.
- Expensing the equipment immediately in this simplified asset-purchase example.
- Omitting the credit sale because no cash was received.
- Counting a customer collection as revenue a second time.
- Assuming a balanced trial balance guarantees accuracy.
Your study checklist
Copy these prompts into your notes. This page does not save completion.
- I can explain all seven journal entries.
- I can calculate the cash balance without the solution.
- I can prepare the $8,400 trial balance.
- I can reconcile the $8,100 accounting equation.
- I can explain why collecting a receivable does not create new revenue.