Each step of recording a business transaction in the books of accounts begins with making a journal entry. It is the foundation of every accounting system and one of the main components of the double entry system. How to Write and Post a Journal Entry Let us look into a basic example of a journal entry: — Suppose, a company buys a machinery worth ₹50,000 in cash; The journal entry shall be —Machinery A/c Dr ₹50,000, To Cash A/c ₹50,000. It indicates what account is debited and what account is credited. It adheres to the principle of debiting what can be added and crediting what can be removed. These include meaning, format, types, writing a journal entry from scratch, etc. So we will explain everything with very basic words and using examples from the real world.
Journal entries are used to record business transactions in the accounting book. It has a set journal entry style. The assignment of debits and credits ensures that the ledger is balanced; in double entry book keeping, every debit has a matching credit. This system balances the books.
What is Journal Entry?
A journal entry is a record of a business event (financial transaction). It displays date, accounts involved, amount debited and credited and a short note or narration. Accounting journal entries begin in the general journal and then transfer to ledgers. These records form the foundation for financial reporting.
Each entry involves at least two accounts — one is debited and the other is credited. That’s why we call it the double entry system. That helps keep track of where money is going and where it comes from. Such tangible improvements can help reduce inaccuracies and errors.
Parts of a Journal Entry
An example of a simple journal entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 01/04/2025 | Cash A/c Dr | 10,000 | ||
| To Capital A/c | 10,000 | |||
| (Being capital introduced) |
- Date: The date of when the transaction occurred.
- Details: The names of accounts involved.
- L.F._(Ledger Folio): Page number in ledger (not required in exams).
- Amount on the right column - debit/ credit
- Narration: A short string explaining what the transaction was about.
Few examples of journal entry accounting are able to shed light on this is a good article which explains this better as it shows money coming into the business as a result of equity.
Importance of Journal Entries
Journal entries are where a business’s income and expenses get recorded. It cannot know how much it owes nor what it owns. And, the foundation of final accounts is journal entries. They help in:
- Tracking cash and credit transactions.
- Preparing ledger accounts.
- Creating the trial balance.
- Creating profit and loss accounts and balance sheets
Examples are not only for what to write in a journal, but they also serve to help students learn how to do so.
Types of Journal Entries in Accounting
They can be in the form of journal entries. They all serve different purposes. To know full accounting, you shall also be aware of all types of journal entries.
Simple Journal Entry
A journal entry is a record of a business event (financial transaction). It displays date, accounts involved, amount debited and credited and a short note or narration. This entry contains just two accounts — a debit and a credit. The best journal entry for beginners
Example:Stationery cash purchase ₹500
Stationery A/c Dr ₹500
To Cash A/c ₹500
This is a simple journal entry, where one account is debited, and one account is credited.
Compound Journal Entry
A compound journal entry is an accounting entry that involves more than two accounts—either multiple debits, multiple credits, or both. It is used when a single transaction affects several accounts at once. This simplifies bookkeeping by combining related entries into one comprehensive record.This entry includes more than two accounts. It can have one or more debits, and/or credits. Businesses typically use it for payroll, rent or group expenses. For example:
For ₹15,000 — ₹10,000 for the rent and ₹5,000 for the salary
Rent A/c Dr ₹10,000
Salary A/c Dr ₹5,000
To Cash A/c ₹15,000
This is an example of how to sum the expenses into a single entry.
Opening Journal Entry
An opening journal entry is the first entry made at the beginning of a new accounting period to bring forward the balances of assets, liabilities, and capital from the previous year. It sets up the opening balance sheet for the current year. This entry ensures continuity in the accounting records.. This is a first fiscal year entry. It roads the closing balance of the people last year. It imports assets, liabilities, and capital.
Cash A/c Dr
Furniture A/c Dr
To Capital A/c
To Loan A/c
In accounting, this is an unusual journal entry because it carries forward old balances to the new year.
Adjusting Journal Entry
An adjusting journal entry is made at the end of an accounting period to update income and expense accounts to reflect the correct amounts. These entries ensure that revenues and expenses are recorded in the period they actually occur (accrual basis). As at the year end, we do all these additional entries in order to correctly match up the revenue with the expenses. These are adjusting entries. Principles are matched; they are the keys.
For example: Accrued salary ₹5,000
Salary A/c Dr ₹5,000
To B Team A/c (Debit-502) ₹5,000
Closing Journal Entry
A closing journal entry is an accounting entry made at the end of an accounting period to transfer balances from temporary accounts to permanent accounts.This closes out temporary accounts such as income and expenses. It assists in the preparation of the Profit & Loss Account. Temporary accounts include:
- Revenue accounts (e.g., Sales, Commission Received)
- Expense accounts (e.g., Rent, Salaries, Electricity)
- Drawings (in the case of sole proprietors)
.Illustration: If Closing Rent A/c is ₹10,000
Profit & Loss A/c Dr ₹10,000
To Rent A/c ₹10,000
Transfer Journal Entry
A transfer journal entry is an accounting entry made to move funds or balances from one account to another. This type shifts balances between account types. It helps during reallocations or adjustments.
These entries are common in situations involving:
- Interdepartmental transactions
- Bank-to-bank transfers
- Internal fund reallocations
Illustration: Transfer of balance from Purchase A/c to Trading A/c
Trading A/c Dr
To Purchase A/c
Rectifying Journal Entry
When an error is committed in the books of accounts the same should be corrected to show true numbers in financial statements. If the error is immediately identified it may be fixed by striking out the wrong entry and replacing it with a correct one. Rectifying entries are used to remedy the mistake made in the earlier entries.
Correcting wrong Debit of Sales A/c instead Rent A/c
Rent A/c Dr
To Sales A/c
Mastering all these sorts of journal entries is actually crucial to get on with real-life accounting tasks.
Step-by-Step Guide for How to Write a Journal Entry?
The meaning of Journal Entry is important for every commerce student. With a few simple rules, it becomes easy to do.
- Identify the Transaction
The initial step of route is reading the transaction carefully. Understand what happened. For instance: “Paid electricity bill of ₹2,000 in cash.”
- Determine Which Accounts Are Being Used
- Discover which accounts are included in the transaction. In our case:
Electricity Expense A/c
Cash A/c
- Determine What Kind of Accounts
Which means electricity is an expense account. Cash is an asset. Debit increases the expense accounts. A credit decreases account balances for assets.
- Apply the Golden Rules
The side that receives value or increases an expense, is the debit side.
The account that provides value or decrease in asset would be debited.
- Write the Journal Entry
Electricity Expense A/c Dr. 2,000
To Cash A/c ₹2,000
(Being electricity bill paid)
- Make sure to Follow the Journal Entry Format
Always use this journal entry format:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| dd/mm/yyyy | [Debit Account] A/c Dr | xxxx | ||
| To [Credit Account] A/c | xxxx | |||
| (Narration) |
It ensures your accounting journal entry is clean and readable.
Tips for Beginners
If you are new to this, give these steps a go:
- Examples of practice journal entries with the solution to understand every type
- Writing by hand may also help you better familiarize yourself with the format of a journal entry.
- Golden rules are fundamental, debit – credit matching.
- Spend the time to check your entries daily for errors.
- Daily journal entries help you to build accounting skills for your exams and jobs
Relevance to ACCA Syllabus
Journal entry examples are one of the basics of ACCA as you have to use them in Financial Accounting (FA) and Financial Reporting (FR). In the International Financial Reporting Standards (IFRS), journal entries ensure accurate record-keeping. This is the knowledge required for preparing ledgers, trial balances, and financial statements. This is essential that ACCA learners master, to continue developing the competence in higher-level financial reporting and analysis.
Journal Entry Example ACCA Questions
Q1. What is first account is affected when business purchases machinery for cash.
A) Cash Account
B) Machinery Account
C) Purchase Account
D) Expense Account
Ans: B) Machinery Account
Q2: Which accounting principle is being used in a journal entry if debit and credit are used?
A) Matching Principle
B) Revenue Recognition principle
C) Going Concern
D) Double Entry System
Ans: D) Double Entry System
Q3. Journal entry when the payment is made in advance of rent of $1,000.
A) Debit Rent Expense A/c, Credit Cash A/c
B) Debit Cash A/c and Credit Rent Expense A/c
C) Cash A/c Dr, To Prepaid Rent A/c
D) Prepaid Rent A/c Dr., To Cash A/c
Ans: D) Prepaid Rent A/c Dr., To Cash A/c
Q4: What is the purpose of a narration as part of a journal entry?
A) To calculate profit
B) Display the ledger page number
C) To explain the transaction
D) To balance the books
Ans: C) To explain the transaction
Q5: What is the financial statement that directly effected by incorrect journal entry?
A) Cash Flow Statement
Statement of Financial Position (B)
C) Notes to Accounts
D) Auditors’ Report
Ans: B) Statement of Financial Position
Relevance to US CMA Syllabus
In CMA Cost and financial accounting (the subjects that find their own standing in the accounting world) has a very close semblance with US CMA syllabus, whereas journal entries is the key to thrive any cost and financial accounting. Similar to the experience in Part 1: Financial Planning, Performance and Analytics, journal entry examples in these areas allows candidates to follow transactions in real time, especially those that come to light with respect to the budgeting, internal controls, and performance.
Journal Entry Example US CMA Questions
Q1: What account will increase when a company pays off a loan with cash?
A) Loan Payable
B) Cash
C) Interest Expense
D) Equity
Ans: A) Loan Payable
Q2: What will be the correct journal entry when depreciation of $5,000 is recorded?
A) Depreciation A/c Dr To Cash A/c
B) Depreciation Expense A/c Dr To Accumulated Depreciation A/c
C) Cash A/c Dr. To Depreciation A/c
D) No Provision of Depreciation – Journal Entry.
Ans:B) Depreciation Expense A/c Dr To Accumulated Depreciation A/c
Q3: Choose the one that does not belong: a journal entry.
A) Date
B) Debit
C) Trial Balance
D) Credit
Ans: C) Trial Balance
Q4: What kind of entry is made to represent the cost of goods sold at the moment of sale?
A) Adjusting Entry
B) Closing Entry
C) Compound Entry
D) Simple Entry
Ans: C) Compound Entry
Q5: What is its debit if salaries are paid in advance?
A) Salaries Expense
B) Prepaid Salaries
C) Salaries Payable
D) Cash
Ans: B) Prepaid Salaries
Relevance to US CPA Syllabus
Journal entries are critical in the US CPA Exam especially the Financial Accounting and Reporting (FAR) section. Candidates are required to apply GAAP-based accounting to different transactions. Journal entry examples are only valid if used to show recognition, measurement, and classification in financial reports.
Journal Entry Example US CPA Questions
Q1: When a payment is made in advance of revenue recognition, what would the journal entry look like with US GAAP?
A) To cash a/c (credit) or income debit.
B) Cash A/c Dr, To Unearned Revenue A/c
C) Cash A/c Dr, C) Unearned Revenue A/c
D) Dr Cash A/c To Revenue A/c
Ans:B) Cash A/c Dr, To Unearned Revenue A/c
Q2: Which journal entry is accrued expenses?
A) Debit Expense A/c, Credit Cash A/c
B) Debit Cash A/c, Credit Expense A/c
C) Debit Expense A/c, Credit Accrued Liabilities A/c
D) Debit Accounts Payable A/c, Credit Expense A/c
Ans:C) Debit Expense A/c, Credit Accrued Liabilities A/c
Q3: If you purchase inventory on credit, what accounts does this affect?
A) Inventory and Accounts Payable
B) Inventory and Cash
C) Purchases and Accounts Receivable
D) Accounts Payable and Sales
Ans: A) Inventory and Accounts Payable
Q4: What happens if i do not record a journal entry for an expense?
A) Understated Assets
B) Overstated Liabilities
C) Overstated Net Income
D) Understated Equity
Ans: C) Overstated Net Income
Q5: One mistake that a lot of people make when working on journal entries is:
A) Balancing both sides
B) Including a narration
C) Using compound entries
D) Make debits and credits to the same account
Ans: D) You can debit and credit the same account
Relevance to CFA Syllabus
Understanding how journal entries examples are prepared under IFRS and US GAAP is really critical to the CFA Program, particularly at Level I (Financial Reporting and Analysis). While CFA, unlike CPA or ACCA, doesn’t directly focus on entries to make on exams, the understanding helps remove the guesswork from transaction analysis in understanding how they impact financial statements, a crucial aspect in making investment decisions.
Journal Entry Example CFA Questions
Q1: What journal entry is correct when a company has earned revenue on credit?
A) Cash A/c Dr, To Revenue A/c
B) To Accounts Receivable A/c, Dr Revenue A/c
C) Recuperação de Contas A/c Dr, A Receita A/c
A) Debiting: Sales A/c Dr, To Accounts Payable A/c
Ans: C) Debtor A/c Dr, To Income A/c
Q2: Why is journal entry accurate in financial analysis?
A) It lowers income taxes
B) To meet the limit set for stock exchanges
C) It affects important ratios and data accuracy
D) It informs marketing strategy
Ans: C) It is affects the gearing ratios and other fundamentals
Q3: What would happen if we did not record depreciation in journal entries?
A) Overstated revenue
B) Understated assets
C) Inflated assets and net income
D) No effect on financials
Ans: C) Exaggerated assets and net income
Q4: What is the Entry of receivable to reflect importation or sales receipt (for sales).
A) Dr Cost of Goods Sold A/c, To Inventory A/c
B) Debit the Sales A/c & Credit the Inventory A/c
C) Inventory A/c Dr & To Cost of Goods Sold A/c
D) DR (Revenue A/c), To (Inventory A/c)
Ans : A) Cost of Goods Sold A/c Dr, To Inventory A/c
Q5: What financial statement is most affected by erroneous journal entries?
A) Market share
B) Financial ratios
C) Advertising expenses
D) Budget reports
Ans: B) Financial ratios
