Accounting journal entries are the foundation of accurate bookkeeping and financial reporting. Every business transaction, from sales and purchases to salary payments and bank charges, must be recorded correctly.
In this practical guide, CareerFocusNow explains 16 common accounting journal entries with real-world examples, debit and credit rules, account classifications, and clear explanations. This guide is useful for accounting students, freshers, bookkeepers, and professionals preparing for accounting interviews.
Total Debits = Total Credits
1. What Is a Journal Entry in Accounting?
A journal entry is the formal record of a financial transaction in an accounting system. It identifies the accounts affected and records the amounts debited and credited.
For example, if a business sells goods worth $5,000 on credit, the customer owes the business money.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $5,000 | — |
| Sales Revenue | — | $5,000 |
| Total | $5,000 | $5,000 |
Explanation: Accounts Receivable increases because the customer owes money. Sales Revenue is credited because the business has earned revenue.
2. Golden Rules of Accounting
Personal Account
Rule: Debit the receiver, credit the giver.
Personal accounts relate to people, businesses, companies, and other parties.
Real Account
Rule: Debit what comes in, credit what goes out.
Real accounts traditionally include assets such as cash, furniture, machinery, and equipment.
Nominal Account
Rule: Debit all expenses and losses, credit all incomes and gains.
Nominal accounts include expenses, losses, income, and gains.
3. Modern Debit and Credit Rules
| Account Type | Increase | Decrease | Examples |
|---|---|---|---|
| Assets | Debit | Credit | Cash, Bank, Equipment |
| Expenses | Debit | Credit | Rent, Salary, Insurance |
| Liabilities | Credit | Debit | Accounts Payable, Loans |
| Equity | Credit | Debit | Owner’s Capital |
| Revenue | Credit | Debit | Sales, Service Revenue |
Assets and expenses normally increase with a debit. Liabilities, equity, and revenue normally increase with a credit.
4. Sixteen Common Accounting Journal Entries
1. Credit Sale — $5,000
Scenario: ABC Traders sells goods worth $5,000 to a customer on credit.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $5,000 | — |
| Sales Revenue | — | $5,000 |
Account types: Accounts Receivable is an asset; Sales Revenue is revenue.
Explanation: The customer owes money, so Accounts Receivable is debited. Revenue increases, so Sales Revenue is credited.
2. Cash Sale — $2,000
Scenario: A store sells goods for $2,000 and receives payment directly into its bank account.
| Account | Debit | Credit |
|---|---|---|
| Bank | $2,000 | — |
| Sales Revenue | — | $2,000 |
Explanation: Bank increases and is debited. Sales Revenue increases and is credited.
3. Credit Purchase — $3,000
Scenario: A business purchases inventory worth $3,000 from a supplier on credit.
| Account | Debit | Credit |
|---|---|---|
| Inventory | $3,000 | — |
| Accounts Payable | — | $3,000 |
Explanation: Inventory is an asset that increases. Accounts Payable is a liability that increases.
4. Office Supplies Purchase — $800
Scenario: A business buys office supplies for $800 and pays immediately. Assume the supplies are consumed during the period.
| Account | Debit | Credit |
|---|---|---|
| Office Supplies Expense | $800 | — |
| Bank | — | $800 |
Explanation: The expense increases, while the bank balance decreases.
5. Customer Payment — $2,500
Scenario: A customer pays $2,500 against an existing credit invoice.
| Account | Debit | Credit |
|---|---|---|
| Bank | $2,500 | — |
| Accounts Receivable | — | $2,500 |
Explanation: Bank increases, and the customer’s outstanding balance decreases.
Important: Do not record Sales Revenue again if the original sale has already been recorded.
6. Supplier Payment — $1,500
Scenario: A business pays $1,500 to a supplier against an outstanding invoice.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $1,500 | — |
| Bank | — | $1,500 |
Explanation: The liability decreases, so Accounts Payable is debited. Bank decreases, so it is credited.
7. Sales Return — $500
Scenario: A customer returns goods worth $500 from a previously recorded credit sale.
| Account | Debit | Credit |
|---|---|---|
| Sales Returns and Allowances | $500 | — |
| Accounts Receivable | — | $500 |
Explanation: Sales Returns reduces net sales. Accounts Receivable decreases because the customer owes less.
8. Purchase Return — $300
Scenario: A business returns defective inventory worth $300 to a supplier.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $300 | — |
| Inventory | — | $300 |
Explanation: The amount payable to the supplier decreases, and the returned inventory is removed from inventory.
9. Sales Allowance / Credit Note — $200
Scenario: A seller grants a $200 price reduction because of minor defects in goods retained by the customer.
| Account | Debit | Credit |
|---|---|---|
| Sales Returns and Allowances | $200 | — |
| Accounts Receivable | — | $200 |
Explanation: The allowance reduces net sales and the customer’s outstanding balance.
10. Supplier Allowance — $150
Scenario: A supplier grants a $150 price adjustment for inventory that the business keeps.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | $150 | — |
| Inventory | — | $150 |
Explanation: The amount payable decreases. Under a perpetual inventory system, the inventory cost is reduced.
11. Accrued Salary — $1,200
Scenario: Employees earn $1,200 in December, but payment will be made in January.
| Account | Debit | Credit |
|---|---|---|
| Salary Expense | $1,200 | — |
| Salaries Payable | — | $1,200 |
Explanation: Salary Expense is recorded in the period employees earned it. Salaries Payable records the unpaid obligation.
When paid: Debit Salaries Payable $1,200 and credit Bank $1,200.
12. Prepaid Insurance — $2,400
Scenario: A business pays $2,400 for a 12-month insurance policy.
| Account | Debit | Credit |
|---|---|---|
| Prepaid Insurance | $2,400 | — |
| Bank | — | $2,400 |
Monthly adjustment: $2,400 ÷ 12 = $200 per month.
| Account | Debit | Credit |
|---|---|---|
| Insurance Expense | $200 | — |
| Prepaid Insurance | — | $200 |
Explanation: Each month, the used portion becomes an expense and the prepaid asset decreases.
13. Depreciation Expense — $500
Scenario: A company records $500 depreciation on equipment for the month.
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | $500 | — |
| Accumulated Depreciation | — | $500 |
Explanation: Depreciation Expense records the period’s allocated cost. Accumulated Depreciation is a contra-asset account.
14. Bank Charges — $50
Scenario: The bank deducts a $50 service fee from the business account.
| Account | Debit | Credit |
|---|---|---|
| Bank Charges Expense | $50 | — |
| Bank | — | $50 |
Explanation: The bank fee is an expense, and the bank balance decreases.
15. Accrued Revenue — $900
Scenario: A consulting firm completes services worth $900 in December but will invoice the customer in January.
| Account | Debit | Credit |
|---|---|---|
| Accrued Revenue / Unbilled Receivable | $900 | — |
| Service Revenue | — | $900 |
Explanation: Revenue has been earned. An appropriate receivable is recognized, and Service Revenue is credited.
16. Customer Advance — $5,000
Scenario: A customer pays $5,000 in advance for goods or services to be delivered next month.
| Account | Debit | Credit |
|---|---|---|
| Bank | $5,000 | — |
| Customer Advances / Unearned Revenue | — | $5,000 |
Explanation: Bank increases, but the business still owes the customer goods or services. Therefore, the advance is initially recorded as a liability.
When the goods or services are delivered:
| Account | Debit | Credit |
|---|---|---|
| Customer Advances / Unearned Revenue | $5,000 | — |
| Sales Revenue / Service Revenue | — | $5,000 |
5. Quick Revision Table
| Transaction | Debit | Credit |
|---|---|---|
| Credit sale | Accounts Receivable | Sales Revenue |
| Cash sale | Bank / Cash | Sales Revenue |
| Credit purchase | Inventory | Accounts Payable |
| Customer payment | Bank | Accounts Receivable |
| Supplier payment | Accounts Payable | Bank |
| Accrued salary | Salary Expense | Salaries Payable |
| Prepaid insurance | Prepaid Insurance | Bank |
| Depreciation | Depreciation Expense | Accumulated Depreciation |
| Bank charges | Bank Charges Expense | Bank |
| Accrued revenue | Accrued Revenue | Service Revenue |
| Customer advance | Bank | Unearned Revenue |
6. How to Identify the Correct Account
- Identify the transaction: Understand what happened.
- Identify the accounts: Determine which accounts are affected.
- Classify the accounts: Asset, liability, equity, revenue, or expense.
- Determine increases and decreases: Check how each account changes.
- Apply debit and credit rules: Confirm that total debits equal total credits.
7. Accounting Journal Entry Practice Questions
- A business purchases furniture for $2,000 and pays by bank transfer. Prepare the journal entry.
- A company pays $1,500 to a supplier against an existing invoice. Which accounts are affected?
- A business receives $800 from a customer whose invoice was already recorded. Should Sales Revenue be credited again?
- A company records $1,200 of unpaid salaries at month-end. What is the journal entry?
- A customer owes $5,000 and pays $3,000. Calculate the remaining receivable balance.
Answers
1. Debit Furniture $2,000; Credit Bank $2,000.
2. Debit Accounts Payable $1,500; Credit Bank $1,500.
3. No. Debit Bank $800; Credit Accounts Receivable $800.
4. Debit Salary Expense $1,200; Credit Salaries Payable $1,200.
Opening receivable: $5,000
Payment received: $3,000
Remaining receivable: $5,000 − $3,000 = $2,000
Journal entry: Debit Bank $3,000; Credit Accounts Receivable $3,000.
8. Common Journal Entry Mistakes to Avoid
- Recording customer collections as new revenue: This can overstate sales.
- Treating every payment as an expense: Equipment purchases and loan principal repayments are not automatically expenses.
- Confusing receivables and payables: Receivables are owed to the business; payables are owed by the business.
- Ignoring prepaid expenses: The unused portion may need to remain an asset.
- Forgetting adjusting entries: Accrued salary, depreciation, and accrued revenue may require adjustments.
- Ignoring the inventory system: Purchase and return entries can vary under periodic and perpetual systems.
9. Frequently Asked Questions
What is the basic rule of a journal entry?
Total debits must equal total credits. The accounts selected depend on the nature of the transaction.
What are the three golden rules of accounting?
Debit the receiver and credit the giver; debit what comes in and credit what goes out; and debit expenses and losses while crediting incomes and gains.
Is Bank an asset or a liability?
Bank is an asset account. An increase is normally debited, while a decrease is normally credited.
Is Accounts Receivable an asset?
Yes. It represents money customers owe to the business.
Is Accounts Payable a liability?
Yes. It represents amounts the business owes to suppliers or other creditors.
What is the difference between accrued and prepaid expenses?
An accrued expense has been incurred but is not yet paid or fully recorded as a liability. A prepaid expense is paid in advance for future benefits.
Why must debits equal credits?
Double-entry accounting helps maintain the accounting equation: Assets = Liabilities + Equity. A balanced entry is necessary, though it does not guarantee that every account has been classified correctly.
Conclusion
Understanding accounting journal entries is essential for accurate bookkeeping, financial reporting, and accounting interview preparation. By learning how transactions affect assets, liabilities, equity, revenue, and expenses, you can record everyday business activities with greater confidence.
Practice these 16 examples, review the debit and credit rules, and test yourself with the questions above. For more practical accounting guides and career-focused learning resources, keep visiting CareerFocusNow.
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