One little company, five real events
You now own every tool this rung set out to give you. You can read a T-account, you know each account's normal balance, you can apply the debit and credit rules, and you can turn an event into a balanced journal entry using the four-question method. This last guide does not introduce anything new — it drills what you have, the only way fluency is ever built: by repetition. We will follow one tiny business through five of the most common transactions a company ever records, and work each one end to end.
Meet Mara, who is opening a small print shop in June. For every transaction we will do the same three things in the same order — analyze it with the four questions, journalize it as a dated entry, and post it to the relevant T-accounts. Because all five events belong to the same business, the T-accounts accumulate as we go, so by the end you will see real running balances, not five disconnected snippets. Keep one promise in mind throughout: within every single entry, total debits must equal total credits, and the accounting equation must still hold afterward.
Transactions 1 and 2: starting up and buying on credit
June 1 — Mara invests 10,000 dollars of her own cash to start the shop. Four questions. Which accounts? Cash, and the equity account that records what she has put in, Owner's Capital. What type? Cash is an asset; Capital is part of owner's equity. Up or down? Both rose — the shop now holds 10,000 in cash, and Mara's stake in it is 10,000. Debit or credit? An asset going up is a debit, and equity going up is a credit. So: debit Cash 10,000, credit Owner's Capital 10,000. Notice the equation moving as a unit — assets +10,000 on the left, equity +10,000 on the right — which is exactly why the entry balances.
June 3 — Mara buys 2,000 dollars of paper and ink on account, to pay the supplier later. This is a credit purchase: she receives goods now and promises to pay in the future. Which accounts? Supplies (what she now owns) and Accounts Payable (what she now owes). What type? Supplies is an asset; Accounts Payable is a liability. Up or down? Supplies rose by 2,000; the obligation rose by 2,000. Debit or credit? An asset rising is a debit; a liability rising is a credit. So: debit Supplies 2,000, credit Accounts Payable 2,000. The crucial thing to feel here is that no cash moved — buying on credit swaps a future promise for goods today, which is the whole reason a separate liability account has to exist.
Written out in the familiar layout, the first entry reads: debit Cash 10,000 on the top line at the left margin, then credit Owner's Capital 10,000 on the indented line below, with the narration "owner invested cash to start the shop." The second follows the same shape: debit Supplies 2,000, credit Accounts Payable 2,000, narrated "bought paper and ink on account." Each pair balances on its own — 10,000 against 10,000, 2,000 against 2,000 — so each is a complete, self-contained sentence before we ever post it.
Transaction 3: a cash sale (and the receivable behind transaction 5)
June 10 — Mara prints flyers and a customer pays 1,500 dollars cash on the spot. Which accounts? Cash and Service Revenue. What type? Cash is an asset; Service Revenue is revenue. Up or down? Cash rose by 1,500; revenue was earned, so it rose by 1,500. Debit or credit? An asset rising is a debit; revenue rising is a credit. So: debit Cash 1,500, credit Service Revenue 1,500. This is the textbook cash sale — the work is done and the money arrives in the same instant, so a single entry captures both the earning and the collection at once.
To set up our fifth transaction, Mara also makes one sale on credit. June 12 — she prints a large order for a business client and bills them 1,800 dollars, due in thirty days. Here the earning and the collection split apart in time. Which accounts? Accounts Receivable (the right to collect) and Service Revenue. Both are assets-and-revenue rising, so: debit Accounts Receivable 1,800, credit Service Revenue 1,800. Revenue is recorded now, the moment the work is done — even though not a cent of cash has arrived. This is accrual thinking in miniature, and it is the reason transaction 5 will look surprising.
Transactions 4 and 5: paying a supplier, collecting from a customer
June 20 — Mara pays the supplier the 2,000 dollars she owed from June 3. Which accounts? Accounts Payable and Cash. What type? Payable is a liability; Cash is an asset. Up or down? The debt shrinks by 2,000; cash shrinks by 2,000. Debit or credit? A liability going down is a debit (the opposite of the credit that created it); an asset going down is a credit. So: debit Accounts Payable 2,000, credit Cash 2,000. Read the meaning, not just the mechanics — paying a supplier is not an expense. The expense was already there in the value of the supplies; this entry simply settles a debt by handing over cash. Nothing on the income statement moves.
June 25 — the business client from June 12 pays its 1,800 dollar bill. Which accounts? Cash and Accounts Receivable. What type? Both are assets. Up or down? Cash rose by 1,800; the receivable — the right to collect — is now satisfied, so it falls to zero. Debit or credit? An asset rising is a debit; an asset falling is a credit. So: debit Cash 1,800, credit Accounts Receivable 1,800. Here is the surprise: collecting from a customer records no revenue. The revenue was already booked on June 12 when the work was done. Today is just the asset Accounts Receivable transforming into the asset Cash — one promise turning into money. Recording revenue again would double-count it.
Posting it all and seeing the books balance
Journalizing recorded the events in time order; now we post them — copying each amount into its own T-account so we can read a running balance. Cash is the busiest account, touched by four of the five transactions: it gained 10,000 (June 1) and 1,500 (June 10) and 1,800 (June 25) on the debit side, and lost 2,000 (June 20) on the credit side. Add the debits, subtract the credit, and Cash settles at a 11,300 debit balance — which is sensible, since Cash is an asset and assets carry a debit normal balance.
Cash Accounts Receivable
(debits) | (credits) (debits) | (credits)
---------+---------- ---------+----------
10,000 | 1,800 | 1,800
1,500 | 2,000 ---------+----------
1,800 | bal: 0
---------+----------
bal: 11,300 debit
Accounts Payable Service Revenue
(debits) | (credits) (debits) | (credits)
---------+---------- ---------+----------
2,000 | 2,000 | 1,500
---------+---------- | 1,800
bal: 0 ---------+----------
bal: 3,300 creditNow the magic of double entry becomes visible. List every account's ending balance with debits in one column and credits in the other. Debit balances: Cash 11,300 and Supplies 2,000, totalling 13,300. Credit balances: Owner's Capital 10,000 and Service Revenue 3,300, also totalling 13,300. (Accounts Receivable and Accounts Payable both netted to zero and drop out.) The two columns match — not by luck, but because every entry we wrote was itself balanced, so the sum of all of them must balance too. The same logic anchors the accounting equation: assets of 13,300 equal liabilities of 0 plus equity of 13,300.
What you have actually mastered
Look back at what just happened. With nothing but the four questions and the debit and credit rules, you handled an owner's investment, a credit purchase, a cash sale, a supplier payment, and a customer collection — five different shapes of event — and every one fell into place. The transactions that fill a real company's books are mostly variations on these five. Bigger numbers and stranger names will come, but the method you just rehearsed does not change; that is precisely why this rung insisted you learn it cold before moving on.
You have now finished the double-entry rung. You can analyze a transaction, write a balanced journal entry, post it to T-accounts, and prove the books balance by laying debit and credit totals side by side. That final move — listing every balance and checking the columns agree — has a formal name, the unadjusted trial balance, and it is the doorway into the next rung, the accounting cycle, which takes a whole month of entries like Mara's and carries them all the way to finished financial statements. The engine is built; from here on, you are mostly learning where to point it.