Journal Entry Example: A Guide to Accounting Basics

Key takeaways

A journal entry in accounting is financial data input into the general ledger, with debit and credit sides for balanced accounting. 

• A journal entry contains the date, description of the transaction, the accounts affected, and the debit and credit amounts. 

• Journal entries follow double-entry bookkeeping principles, meaning that one account will have a debit and another credit to balance each other out. 

• You can start doing your own bookkeeping to understand how journal entries work, their importance, and how to begin accounting. 

Learn about the importance of journal entries in accounting, some common entries you’ll see, and how to write a journal entry into the general ledger. If you’re ready to build in-demand skills as a bookkeeper, try the Tally Bookkeeper Professional Certificate. In as little as four months, you can explore the fundamentals of accounting, how to manage accounts receivable and payable, and basic taxation concepts. 

What is a journal entry in accounting?

A journal entry in accounting is the input of financial data into an organization’s general ledger (GL). It contains information relevant to a transaction, whether that be a purchase, a sale, or the movement of money. When you make journal entries, you record them in chronological order, and accounting software today makes recording entries much easier than in the past. 

A journal entry must follow double-entry bookkeeping principles and contain these five items:

1. The date of the transaction

2. The name of each account affected, at a minimum of two

3. A reference number to make searching easier later

4. A debit amount and a credit amount

5. A description of the transaction, such as the items purchased/sold, to whom, or where

The more information in a journal entry, the more data you have to spot errors, find discrepancies, and understand financial decisions. 

The table below shows some journal entry examples for some of the everyday business transactions you may encounter.

Decoding a journal entry example: Understanding debits and credits

All journal entries must follow double-entry bookkeeping rules, meaning they need to have a debit side and a credit side to keep the accounting equation balanced:

Assets = Liabilities + Equity

When entering transactions into accounts, note that debits increase expense and asset accounts and decrease liability, equity, and revenue accounts. Credits decrease expense and asset accounts, and increase liability, equity, and revenue accounts. 

Common journal entry examples for everyday business transactions

Some common examples of everyday journal entries you will encounter for general business transactions include:

• The purchase of supplies for your business

• Income from the sale of your product or service

• Other expenses like labor, internet, utilities, and maintenance

• Accounts payable, which is the money you owe to vendors who give you credit

• Accounts receivable, which is money owed to you for the sale of goods or services

• Any loans you receive from the bank

• The payment of principal and interest on any loans you have

Other types of accounting journal entries

Additional types of journal entries you will likely encounter include:

• Opening entry: The first entry made into the general ledger that records the starting balance of an account in the period

• Adjusting entry: End‑of‑period updates that bring accounts in line with accruals, deferrals, depreciation, and other items needed to show an accurate financial picture

• Closing entry: The last entry made in the accounting cycle that closes out the accounting period

• Transfer entries: The movement of money within the business

Every business and organization will encounter different kinds of journal entries depending on the industry and type of business. 

How to prepare a journal entry, with example

Before you can write your first journal entry, ensure you have your chart of accounts set up in your GL so that you can know where to put the entry. Accounting software can help you automate entries and set up your GL. Follow these steps, with a guided example to see how to input your first journal entry. 

1. Obtain the information from the transaction you want to input.

Obtain all the necessary information on the entry, such as the date, amount, and the transaction description. Keep transactions in chronological order. If you’re using software, it will organize it for you, but if you are doing your books manually, ensure you have all your transactions ready and organized. 

For example, say you want to begin by inputting business expenses for a small wood-working company. The first transaction you want to enter is a $500 purchase of lumber using a business credit card on February 6, 2026, with subsequent purchases to follow.

2. Determine which accounts the transaction affects.

Using the example transaction above, the purchase was for lumber, so it will go into a materials/lumber expense account called “Building Materials.” Since you purchased them with a credit card, it will go into the liability account associated with the credit card named “Biz Credit.”

3. Identify where the debits and credits lie for each account.

You’ve determined that the account will be input twice: once into the “Building Materials” expense account and again into the “Biz Credit” card liability account. Using double-entry bookkeeping principles, you record the transaction as a debit in one account and a credit in the other. 

Since you used the business credit card to make the purchase, that balance needs to increase. To increase a liability account, you input it as a credit. The corresponding entry is debited to the expense account, increasing its balance. This transaction is now balanced since it is input as both a debit and a credit. 

4. Input the transaction information into the identified accounts. 

You now have your extracted transaction information and know which accounts it needs to go into; all you need to do is write in. The basic input of this transaction looks as follows:

What are the three rules of journal entry?

The three rules of journal entry focus on tracking fundamental accounting information. They each apply to primary account types. These rules include:

• Rule one: This applies to personal accounts, which track transactions between people, institutions, and businesses, and requires you to credit the person giving funds (the payer) and debit the person receiving them (the payee).

• Rule two: This rule applies to real accounts, which track information found on a balance sheet, such as assets, liabilities, and equity, and requires you to debit incoming and credit outgoing payments. 

• Rule three: This rule applies to nominal accounts, which track transactions over a specific period and close at the end of the accounting period, with their balances creating a profit or loss. Examples include expense accounts and income accounts. The rule dictates that you debit expenses and losses, and credit income and gains.

Getting started in accounting and bookkeeping

Whether you’re a small business owner or just want to begin gaining skills in accounting and bookkeeping, you can start taking steps to get started. For example, you might begin by determining the kind of software you want to use. It could be a paid software like QuickBooks, a spreadsheet, or open-source like GnuCash. Additional steps include the following:

1. Set up your chart of accounts (COA). You can start with something simple, like assets, equity, expenses, and liabilities, and credit subaccounts as you need them. For example, you will have subaccounts for each expense category under your expense parent account. 

2. Determine the accounting method you want to use: cash-basis or accrual accounting. Cash-basis records money as it comes in and out, while accrual accounting tracks all outstanding transactions, even if the money hasn’t exchanged hands yet. 

3. Schedule time to input all of your transactions by keeping your receipts, credit card statements, and bank statements. Some software even lets you connect your credit or bank account to automatically input transactions. 

4. Reconcile your transactions at the end of each month with your bank statement to ensure your books are accurate and to find any discrepancies. 

As you grow as a bookkeeper and accountant, you can begin tracking all incoming and outgoing invoices via accounts receivable and accounts payable so that you can always see where money is flowing. If you own a small business, you should always consult with a certified public accountant (CPA) to help you set up your books and ensure your bookkeeping is accurate. 

Read more: What Does a CPA Do? Tasks, Skills, and How to Become One

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