A journal entry is the record of one business transaction, written as at least two lines in which total debits equal total credits. Every entry lists five things: the date, the accounts affected, the debit amounts, the credit amounts, and a short description. The ten worked examples below cover the entries a small business actually posts, from a simple cash sale to payroll with withholding.
Key takeaways:
Save this cheat sheet — the debit-credit table and entry anatomy in one image.
A journal entry is the bookkeeping record of a single business transaction, showing which accounts the transaction touched and by how much. Entries live in the general journal, the chronological log of everything the business does with money, and each entry later posts to the individual accounts in the general ledger. IRS Publication 583 names journals and ledgers as the core books of a small-business recordkeeping system, whether you keep them on paper or in software.
Every entry, no matter how complex, contains the same five parts:
| Part | What it is | Example |
|---|---|---|
| Date | When the transaction happened | Mar 4, 2026 |
| Accounts | Every account affected, at least two | Cash; Sales Revenue |
| Debit amount | The left-column amount(s) | $900 |
| Credit amount | The right-column amount(s), equal in total to the debits | $900 |
| Description | One line explaining the event | "Logo design, paid at delivery" |
An entry with exactly two lines is a simple entry. An entry with three or more lines, like the payroll example later in this guide, is a compound entry. The balancing rule never changes: add up the debit column, add up the credit column, and the totals must match to the penny.
Whether a debit increases or decreases an account depends entirely on the account type. There are only five types, so this one table decides the direction of every line you will ever post:
| Account type | Debit does | Credit does | Normal balance | Everyday examples |
|---|---|---|---|---|
| Assets | Increases ↑ | Decreases ↓ | Debit | Cash, accounts receivable, equipment, prepaid expenses |
| Liabilities | Decreases ↓ | Increases ↑ | Credit | Loans, credit card balances, payroll taxes owed |
| Equity | Decreases ↓ | Increases ↑ | Credit | Owner's capital, owner's draw (contra), retained earnings |
| Revenue | Decreases ↓ | Increases ↑ | Credit | Sales, service income |
| Expenses | Increases ↑ | Decreases ↓ | Debit | Rent, software, interest, wages |
Two reference points before the examples. First, if the left-right logic itself is new to you, our debits and credits guide explains the T-account and the DEALER memory aid in full. Second, the account names in your entries should come from your chart of accounts, the master list of accounts your business uses; our free chart of accounts template gives you a sensible starting list so you are not inventing account names mid-entry.
The examples follow Dario, a freelance web designer running a single-member LLC. Every entry below balances, and the cheat table above explains each side. Dollar amounts are kept simple so the pattern, not the arithmetic, is the lesson.
| Account | Debit | Credit |
|---|---|---|
| Cash | $900 | |
| Sales Revenue | $900 |
Cash is an asset (debit to increase); revenue increases with a credit, so one sale moves both.
Recording the invoice:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $2,400 | |
| Sales Revenue | $2,400 |
Accounts receivable is the asset "money clients owe me," so on accrual books the revenue is earned when invoiced, not when paid. When the payment arrives, a second entry swaps one asset for another:
| Account | Debit | Credit |
|---|---|---|
| Cash | $2,400 | |
| Accounts Receivable | $2,400 |
The receivable is now cleared to zero, and revenue is not touched again; recording revenue twice for one invoice is one of the most common self-taught bookkeeping errors.
| Account | Debit | Credit |
|---|---|---|
| Software Expense | $85 | |
| Cash | $85 |
Expenses increase with a debit and cash falls with a credit; this two-line rhythm covers most of a service business's entries.
| Account | Debit | Credit |
|---|---|---|
| Owner's Draw | $3,000 | |
| Cash | $3,000 |
A draw is not an expense and never reduces profit; it is an equity account that tracks what the owner took out, which is why it appears nowhere on a profit and loss statement.
| Account | Debit | Credit |
|---|---|---|
| Cash | $5,000 | |
| Owner's Contribution | $5,000 |
Cash up (debit), owner's equity up (credit); this is the mirror image of the draw, and neither direction is income or expense.
Receiving a $10,000 bank loan:
| Account | Debit | Credit |
|---|---|---|
| Cash | $10,000 | |
| Loan Payable | $10,000 |
Loan money is not revenue; it arrives paired with an equal liability. Each monthly payment of $250 then splits into principal and interest, straight from the lender's statement:
| Account | Debit | Credit |
|---|---|---|
| Loan Payable | $200 | |
| Interest Expense | $50 | |
| Cash | $250 |
Only the $50 of interest is an expense; the $200 of principal just shrinks the debt, which is why "my loan payment" never appears as a single expense line on clean books.
Dario buys a $3,600 camera and lighting rig for client work:
| Account | Debit | Credit |
|---|---|---|
| Equipment | $3,600 | |
| Cash | $3,600 |
Equipment is an asset, not an instant expense; the cost reaches the profit and loss statement gradually through depreciation. On straight-line book depreciation over 36 months, each month gets this entry:
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | $100 | |
| Accumulated Depreciation | $100 |
Accumulated depreciation is a contra-asset that offsets the equipment's value on the balance sheet. Tax depreciation can run much faster than book depreciation (Section 179 and bonus depreciation can expense the full cost in year one), which is a tax-return calculation, not a reason to change these entries.
Payroll is the classic compound entry. Gross pay is the expense; the amounts withheld become liabilities until they are sent to the IRS. Using $200 of federal income tax withholding plus the employee's Social Security (6.2% = $124) and Medicare (1.45% = $29) from IRS Publication 15:
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | $2,000 | |
| Federal Income Tax Withholding Payable | $200 | |
| Social Security Tax Payable | $124 | |
| Medicare Tax Payable | $29 | |
| Cash (net pay) | $1,647 |
The employee costs $2,000 even though only $1,647 leaves the bank on payday; the $353 difference is money held in trust for the IRS. The employer's matching share (another $124 + $29 = $153) is a separate entry: debit Payroll Tax Expense $153, credit Payroll Tax Payable $153.
Paying a year of liability insurance up front:
| Account | Debit | Credit |
|---|---|---|
| Prepaid Insurance | $1,200 | |
| Cash | $1,200 |
Prepaid insurance is an asset because eleven future months of coverage are still owed to you. Each month, an adjusting entry moves one month's worth into expense:
| Account | Debit | Credit |
|---|---|---|
| Insurance Expense | $100 | |
| Prepaid Insurance | $100 |
After twelve of these, the prepaid asset is zero and the full $1,200 has hit the profit and loss statement in the months it actually covered.
| Account | Debit | Credit |
|---|---|---|
| Sales Returns and Allowances | $150 | |
| Cash | $150 |
Sales Returns and Allowances is a contra-revenue account: it reduces revenue without deleting the original sale, so your books still show what was sold and what came back. (Small businesses that skip the contra account and debit Sales Revenue directly get the same net profit, with less history.)
Reversed sides. Debiting revenue and crediting cash for a sale produces books where sales shrink every time you get paid. The fix is never to edit history casually: post the exact opposite entry to cancel the mistake, then post the correct one.
Unbalanced entries. Real accounting software physically blocks an entry where debits ≠ credits, but spreadsheet bookkeeping does not. If you keep books in a spreadsheet, add a check cell: total debits minus total credits must show zero on every entry.
Duplicate posting. Recording an expense manually and then accepting the same transaction from the bank feed doubles the expense. Pick one source of truth per account and let a monthly bank reconciliation catch any doubles that slip through.
Booking an owner draw as an expense. Coding Dario's $3,000 draw as "salary expense" understates profit and misstates a Schedule C, because a sole proprietor's draws are not deductible wages. Draws belong in equity, full stop.
Personal spending in business accounts. A grocery run on the business card still needs an entry, and the honest one is a debit to Owner's Draw, not to Meals Expense. Posting personal costs as business expenses is not a bookkeeping style choice; it misstates taxable income.
Not a budget. A journal entry records a transaction that already happened. A budget is a plan for money that has not moved yet; nothing in the journal is a forecast.
Not a bank statement line. The bank feed is the bank's record of your account. A feed line becomes part of your books only when it is posted as a balanced entry with an account category attached.
Not single-entry logging. A spreadsheet listing expenses in one column is single-entry bookkeeping: fine for a tiny cash business, but it cannot produce a balance sheet and has no built-in error check. Journal entries are by definition double-entry, and the debits-equal-credits rule is the self-check.
Mostly software. Modern bookkeeping tools generate the debit and credit lines automatically from a connected bank feed, and a solo owner may go years without typing an entry by hand. The manual skills still matter in exactly three places: reviewing what the software posted (a miscategorized owner draw looks like an expense until a human notices), posting adjustments like the depreciation and prepaid-insurance entries above, and fixing errors with reversing entries. At Anna Money, where we served 60,000+ small businesses, the owners who understood entries rarely posted any; they were simply the ones who caught bad automatic categorizations instead of filing them.
Every entry ultimately flows into your financial statements: revenue and expense lines build the profit and loss statement (our free P&L template shows the destination format), while asset, liability, and equity lines build the balance sheet.
Every example in this guide is an entry someone had to think about; Jupid, an AI accountant you message in WhatsApp or iMessage, does that thinking automatically. Connect your business bank account and every transaction imports with the balanced debit-and-credit entry already created, categorized at 95.9% accuracy. When something needs a human call, like whether a $3,000 transfer was an owner draw or a vendor payment, you answer once in chat and Jupid applies the rule from then on. Need a number mid-conversation with a client? Ask "how much interest have I paid this year?" and get the answer in seconds. Try Jupid.
This article is for general educational purposes only and does not constitute accounting, tax, or legal advice. Accounting treatment can vary by situation, entity type, and accounting method. Consult a qualified accountant or CPA before making decisions for your business.
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Fintech CEO with 10+ years building accounting and financial technology products. Previously co-founded and scaled an AI-powered accounting platform to $30M revenue and 100K+ business users, achieving 30,000 customers per accountant through automation — recognized by CNBC as a top fintech company. Holds a Master's in Management Information Systems. At Jupid, he leads the development of AI-native bookkeeping, tax, and compliance tools designed for freelancers and small business owners.
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