Accounting journal entries are the building blocks of all accounting. They are the foundation on which all financial reports are built. Without them, tracking money would be messy and error prone. Accounting journal entries have specific rules and formats. This includes information such as date, account titles, debit and credit amounts, and a description of the transaction. To put it in simple terms, the answer to what are accounting journal entries is simply written accounts of a business’s regular activities, documented in the general journal and then mapped to ledger accounts. Every business must register such transactions correctly to maintain accounts orderly.
In fact, if you ever plan to learn accounting in detail and properly, you must study the basic accounting journal entries, accounts payable journal entry, accounts receivable journal entry, etc. Before we get onto the types of journal entries, it is important to know that knowing the golden rules of accounting will help you follow correct formats as the journal entries are recorded into accounts. This guide is specifically for Indian students who are just starting with accounting.
What is Accounting Journal Entry?
A journal entry is an entry in a journal. This reflects the monetary impact of each transaction. A journal entry summarizes a single financial transaction in a company’s accounting system. It also shows accounts that have increased or decreased. There are two sides to every entry: a debit and credit. Every rupee that gets debited gets a rupee credited.
These entries are in chronological order, in the general journal. Accountants later post them into ledgers. This system helps to maintain accurate and up-to-date books.
Businesses stay organized with journal entries. They assist accountants in preparing balance sheets, income statements, and other financial reports. These entries are essential to record all financial data.
Importance of Accounting Journal Entries
- They provide an accurate representation of all business transactions.
- They aid in tracking changes in income, expenses, assets, and liabilities.
- They assist in constructing proper financial statements.
- They serve as evidence in the case of an audit or a tax audit
Journal entries are used by every small or big business. This step is unavoidable in good accounting practice.
What is Debit and Credit?
Every journal entry will always have debits and credits. You need to realize them properly before making any entry.
In accounting, debit is one side of a transaction and credit the other. They must always match.
Let’s break it down:
- Debit grows on the assets and expenses side. It reduces liabilities, and so income.
- Credit increases liabilities and revenue. It decreases assets and reduces expenses.
For example
When it receives cash, it debits Cash (as cash is an asset and increases).
If it pays wages, it debits Wages Expense and credits Cash.
Here is a quick table
| Type of Account | Debit Effect | Credit Effect |
| Asset | Increases | Decreases |
| Liability | Decreases | Increases |
| Income | Decreases | Increases |
| Expense | Increases | Decreases |
| Equity | Decreases | Increases |
Knowing the journal entry golden rules of accounting also helps:
- Personal Account – Debit the receiver, Credit the giver
- Real Account – Debit what comes in & Credit what goes out
- Nominal Account – Debit all the expenses and losses, Credit all the incomes and gains
Purpose of Journal Entry
Several important roles in the accounting process are served by journal entries. They are the basis for proper record keeping.
The Importance of Journal Entries for a Business
- Record all transactions: no matter how small.
- Accounting accuracy: Each and every rupee coming in and going out gets recorded.
- Internal auditors support: all entries are valid proof of business process.
- Make accounting easy: It makes it easy to prepare ledgers and financial statements.
- Support business decisions: Clear data enable managers to make better decisions.
Without journal entries, you would not know whether your business is at profit or losses. Students need to be fluent in these entries in order to quickly journal accounts in tests and practical life.
Important Elements to Include in the Journal Entry
Understanding how to properly write each of the parts will allow you to record proper basic accounting journal entries and not make mistakes. An accounting journal entry typically contains:
- Date of transaction – Indicates when it took place.
- Accounts affected – Which accounts are debited and credited.
- It includes – Value debited and credited.
- Deductions: You can take certain deductions from the profits.
- Documentation number – Payment voucher or invoice number.
Sample Layout
| Date | Particulars | Debit (₹) | Credit (₹) |
| 01-Apr-25 | Cash A/c Dr. | 10,000 | |
| To Capital A/c | 10,000 | ||
| (Being capital introduced in cash) |
6 Types of Accounting Journal Entries
Different kinds of journal entries each serves a different type of transaction. Different types of journal entries you should be aware of:
Simple Journal Entry
Technology for one and only one debit and one credit relation. It is used for straightforward events. It is also quite easy to identify and post. It helps in buying goods for cash. Capital can also be introduced by the owner. It is also useful in paying rent or salary.
Example: Paid rent ₹5,000.
Compound Journal Entry
Requires more than one debit or credit.
For instance– Paid salary ₹15,000 and rent ₹5,000 in one entry.
Opening Entry
The records opening balances at the beginning of the accounting year. Consisting of assets, liabilities, and capital. It is used at the start of every financial year. It is also helpful in shifting books to new software. During company takeover or restructuring, this entry is considered.
Adjusting Entry
At the end of a period to accrue income or expenses. These are preventable with Exp-Card. It is essential as it allocates income and expense to the period in which they occur instead of when cash changes hands. It is also known as an “Adjustment Entry”.
Example: Prepaid expenses, outstanding salaries.
Closing Entry
Supplementary accounting to temporary accounts such as expenses and income. Prepare the business for the next accounting year. It is helpful to clear temporary accounts. It shows the real profit or loss incurred by the business in a year.
Transfer Entry
Transfers balances from one account to another. It is helpful in transferring funds between accounts or projects. It also helps to transfer expenses or revenues between accounts.
E.g. Net profit is transferred to cost.
In dealing with advanced entries like lease accounting journal entries, every accountant student must know these types very well.
Preparation of Business Journal Entries
All businesses can benefit from recording entries properly. You have rules and formats to follow. A Step-By-Step Process of Prepare Journal Entries
- Identify the transaction: Identify if it is a purchase, sale, expense, etc.
- Classify the accounts: Identify the affected accounts – assets, expenses, liabilities etc.
- Application of golden rules of accounting: Rules for personal, real, or nominal accounts.
- Decide debit and credit sides: According sometimes to the impact of the transaction
- Write the journal entry: Use the right types and narration.
- Verify totals: The total of debit balances must equal the total of credit balances.
For instance, when a business opens a bank account the journal entry will be:
This is a way you can apply to solve other account journal entry questions.
Examples of Accounting Journal Entries
Examples help to understand the concept. Here are some real-life accounting journal entry example formats to get some idea.
Journal Entry for Accounts Receivable
When a buyer makes a credit purchase:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 05-Apr-25 | Accounts Receivable A/c Dr.To Sales A/c(Being goods sold on credit) | 15,000 | 15,000 |
Accounts Payable Journal Entry
You want to know when you purchase from a vendor on credit:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 06-Apr-25 | Purchases A/c Dr.To Accounts Payable A/c(Being goods purchased on credit) | 10,000 | 10,000 |
Lease Accounting Journal Entries
On recognition of the leased asset:
| Date | Particulars | Debit (₹) | Credit (₹) |
| 07-Apr-25 | Right-of-Use Asset A/c Dr.To Lease Liability A/c(Being leased asset recorded) | 1,00,000 | 1,00,000 |
These are examples of how journal entries work for real business cases. You should always write them in your notebook.
Relevance to ACCA Syllabus
Journal Entries, ACCA | 28% of ACCA Financial Accounting (FA) & Financial Reporting (FR) Papers | You Need to KNOW! What you have to master are double-entry rules and how to apply golden rules of accounting and how to do correct classification of transactions.
Accounting Journal Entries ACCA Questions
Q1. If a business pays ₹5,000 cash as rent, which is the correct journal entry?
A. Debit Cash, Credit Rent Expense
B. Debit Rent Expense, Credit Cash
C. Debit Rent Payable, Credit Cash
D. Debit Capital, Credit Rent Expense
Answer: B
Q2. When credit sales are made what is credited?
A. Cash
B. Accounts Receivable
C. Sales
D. Inventory
Answer: C
Q3. What are variable accounts?
A. Asset
B. Liability
C. Equity
D. Expense
Answer: C
Q4. What is debited in real account according to golden rules?
A. The receiver
B. What comes in
C. All expenses
D. All income
Answer: B
Q5. What do you call an entry to show that several expenses were paid simultaneously?
A. Simple Entry
B. Compound Entry
C. Closing Entry
D. Transfer Entry
Answer: B
Relevance to US CMA Syllabus
The CMA syllabus for both parts has a clear distinction between Part 1 (Financial Planning, Performance, and Analytics) and Part 2 (Strategic Financial Management) as it defines the topics on how to record business transactions using journal entries. These consist of adjustment entries, accruals, prepayment, control over internal.
Accounting Journal Entries US CMA Questions
Q1. For 6 months, a firm prepaid the insurance of ₹12,000. What is the journal entry?
A. MDS — Debit Insurance Expense, Credit Bank
B. Debit Prepaid Insurance and Credit Cash
C. Debit Cash, Credit Prepaid Insurance.
D. Debit Bank, Credit Insurance Expense
Answer: B
Q2. What is the correct entry to recognize interest income earned but not yet received?
A. Cash: Debit, Interest Income: Credit
B. Debit Interest Income, Credit Receivables
C. Debit Income Receivable, Credit Interest Income
D. Debit Interest Payable; Credit Interest Income
Answer: C
Q3. What happens to accounts payable when you buy inventory on credit?
A. Debit Accounts Payable, Credit Purchase
B. Debit Purchases; Credit Accounts Payable
C. Debit Purchases and Credit Cash
D. Debit Inventory, Credit Sales
Answer: B
Q4. What entry do we make for salary payable at month end?
A. Debit Salaries Payable; Credit Salaries Expense
B. Debit Salaries Expense, Credit Salaries Payable
C. Debit Bank, and Credit Salaries Payable
D. Cash D, Salaries Expense C
Answer: B
Q5. What account will be credited when a customer pays in advance?
A. Sales
B. Unearned Revenue
C. Cash
D. Accounts Receivable
Answer: B
Relevance to US CPA Syllabus
Journal entries are the most foundational topics in Financial Accounting and Reporting (FAR) section of the CPA exam. Candidates need to apply accounting principles to leases, revenue recognition, and adjusting entries.
Accounting Journal Entries US CPA Questions
Q1. Based on accrual accounting, what would be the journal entry for earned but unpaid wages?
A. Debit Wages Expense, Credit Cash
B. Debit Wages Payable and Credit Wages Expense
C. Debit Wages Expense, Credit Wages Payable
D. Cash Debit, Wages Expense Credit
Answer: C
Q2. The company announces a dividend of ₹10,000. What is the journal entry?
A. Credit Retained Earnings, Debit Dividends Payable
B. Debit Dividends Payable, Credit Retained Earnings
C. Debit Retained Earnings, Credit Cash
D. Debit Cash and Credit Retained Earnings
Answer: A
Q3. What do you debit when rent expense is paid in advance for the next quarter?
A. Rent Expense
B. Prepaid Rent
C. Accrued Rent
D. Rent Payable
Answer: B
Q4. What journal entry is used to recognize a finance lease at inception?
Debit Lease Asset, Credit Lease Liability A.
B. debit Lease Expense, credit Cash
C. Debit Right-of-use (ROU) asset, Credit Lease Liability
D. Debit Equipment, Credit Lease Revenue
Answer: A
Q5. What entry does a company make if it earns service revenue but has not received payment?
Q. Debit Service Revenue; Debit Accounts Receivable
B. Debit Accounts Receivable, Credit Service Revenue
C) Debit Cash, Credit Service Revenue
D. Decrease Unearned Revenue, Increase Service Revenue
Answer: B
Relevance to CFA Syllabus
CFA level 1 (Financial Reporting and Analysis) — candidates are required to know how accounting entries impact financial statements. This includes journal entries for accrued expenses, prepaid items, revenue recognition, and leases.
Accounting Journal Entries CFA Questions
Q1. A business obtains ₹1,00,000 worth of equipment through a bank loan. What is the journal entry?
A. Debit Equipment, Credit Cash
B: Debit Equipment and Credit Loan Payable
C. Debit Loan Payable, Credit Equipment
D. Debit Equipment, Credit Equity
Answer: B
Q2. What is the correct entry when depreciation has been charged?
A. Debit Depreciation Expense, Credit Accumulated Depreciation
B. Debit Equipment, Credit Depreciation Expense
C. Debit Depreciation Expense, Credit Cash
D. Debit Accumulated Depreciation Credit Equipment
Answer: A
Q3. One customer pays ₹5,000 in advance. Which is the correct entry?
A. Debit Accounts Receivable, Credit Sales
B. Debit Unearned Revenue, Credit Cash
C. Unearned Revenue.
D. Debit Cash, Credit Sales
Answer: C
Q4. An expense recognized but not paid is recorded as:
A. Debit Expense, Credit Cash
B. Debit Expense then Credit Liability
C. Debit Liability, Credit Expense
D. Debit Cash, Credit Expense
Answer: B
Q5. A business is Paying In Interest, although it has yet to collect. How is it recorded?
A. Debit Cash, Credit Interest Income
B. Debit Interest Receivable; Credit Interest Income
C. Debit Interest Income, Credit Interest Receivable
D. Debit Bank , Credit Interest Receivable
Answer: B
