Accounting Entries: How to Record & Manage Journal Entries

Published Wednesday 26 November 2025

Table of contents

• What is a journal entry?
• Why journal entries matter for your business
• How journal entries work
• What are the different types of journal entries in accounting?
• Journal entry example
• How to record journal entries
• Keep your books accurate with Xero
• FAQs on journal entries

Key takeaways

• Record every business transaction using double-entry bookkeeping where debits always equal credits, ensuring at least two accounts are affected to maintain accurate and balanced financial records.

• Implement systematic journal entry procedures by identifying the transaction and affected accounts, classifying each as debit or credit, recording the date and description, then verifying totals balance before posting to your general ledger.

• Utilize different journal entry types strategically, including simple entries for daily transactions, adjusting entries for period-end accuracy, and correcting entries to fix errors while maintaining compliance with record-keeping requirements.

• Maintain complete journal entry records for seven years as required by New Zealand Inland Revenue, including transaction dates, affected accounts, amounts, and clear descriptions to ensure tax compliance and support informed business decisions.

What is a journal entry?

Journal entries are detailed records of business transactions that track money moving in and out of your accounts. They are the basis for accurate financial reporting and help you keep business records that meet New Zealand Inland Revenue requirements. You must keep accurate and complete records for seven years.

Every journal entry captures:

• Transaction date: When the business activity occurred
• Accounts affected: Which parts of your business gained or lost value
• Amounts: How much money moved between accounts
• Description: What happened in simple terms

Journal entries go straight into your financial statements and tax reports, so you stay compliant and can make informed decisions. Under the Tax Administration Act (TAA), the standard retention period for these records is seven years, but this can be extended to 10 years by the Commissioner in certain audit or investigation situations.

Here's more on preparing financial statements.

Why journal entries matter for your business

Accurate journal entries help you see how your business is doing. When your records are organised, you can make better decisions, plan for growth, and handle tax time with less stress.

How journal entries work

You record every business transaction in at least two accounts. This double-entry bookkeeping system keeps your records accurate and balanced.

Here's how the system works:

• Every transaction affects at least two accounts
• Debits and credits always balance
• Each account type increases or decreases in a specific way

Understanding debits and credits:

• Debits increase: Asset and expense accounts
• Credits increase: Liability, revenue, and equity accounts
• The opposite is true for decreases

Here is an example of debits and credits in action:

Debits and credits must balance in each journal entry and the accounting equation. So, in its simplest form, a £100 debit must also be a £100 credit in the same journal entry.

If you want more help, find an accountant near you.

What are the different types of journal entries in accounting?

Journal entry types are determined by when and why you're recording the transaction. Understanding these types helps you choose the right approach for different business situations and ensures your financial records stay accurate.

The main types you'll encounter:

Opening journal entry

Use an opening journal entry to record your business's financial position when you start a new accounting system. This sets up the starting balances for your asset, liability, and equity accounts.

Simple journal entry

Simple journal entries record straightforward transactions that involve only two accounts. Most daily business transactions fall into this category, making them the foundation of small business bookkeeping.

When to use simple entries:

• Cash purchases of supplies or inventory
• Customer payments received
• Bill payments to suppliers
• Bank transfers between accounts

How they work: One account increases while another decreases by the exact same amount, keeping your books balanced.

Compound journal entry

Use a compound journal entry for multiple debits and credits across more than two accounts.

A compound journal entry records all debits and credits for a single event, such as payroll, which includes wages, taxes, and deductions. Even with more accounts, the total debits and credits must still match.

A simple journal entry has one debit and one credit. A compound journal entry lists each debit and credit with its description, such as wage expenses or income taxes payable.

Adjusting journal entry

Adjusting journal entries ensure your financial statements reflect reality at period-end by capturing transactions that span multiple accounting periods. These entries keep your financial reports and tax records accurate.

Common adjusting entries include:

• Accrued expenses: Bills you owe but haven't received yet (like utilities)
• Accrued revenue: Money you've earned but haven't invoiced yet
• Prepaid expenses: Payments you've made for future services (like insurance)
• Deferred revenue: Money received for services you haven't delivered yet

Business example: A consulting firm completes work in December but invoices in January. An adjusting entry records the December revenue in the correct period for accurate year-end reporting.

Reversing journal entry

Use a reversing entry to correct a previous journal entry and make future transactions easier to record.

For example, you might need to reverse an accrual of wages for employees' pay to account for work done in a previous month that is paid in the current month instead. You'll need to account for these wages in the first month, even though they haven't been paid yet, and then reverse the journal entry in the next month.

Recurring journal entry

Record recurring journal entries for regular transactions, such as monthly rent or bills.

Closing journal entry

A closing journal entry ends an accounting period. It transfers balances from temporary accounts, such as revenue and expenses, to permanent accounts like retained earnings. This prepares your accounts for the next period.

Correcting journal entry

Use a correcting journal entry to fix errors, such as posting to the wrong account. This moves the amount to the correct account and keeps your records accurate.

Journal entry example

The Cosy Cake Shop bought baking supplies for $300 on 20 January 2021. The bookkeeper increases the baking supplies account and decreases the cash account by the same amount.

Here's what the simple journal entry looks like:

How to record journal entries

Recording journal entries correctly ensures your financial records are accurate and compliant. Follow this systematic approach to avoid errors and maintain clean books:

1. Identify the transaction and accounts involved

Identify the transaction and accounts involved by determining what happened and which parts of your business were affected.

Ask these key questions:

• What did your business gain? (inventory, cash, equipment, services)
• What did your business give up? (cash, promises to pay, ownership)
• Which account categories apply? (assets, liabilities, equity, revenue, expenses)

Example: Buying office supplies with cash affects two accounts – Office Supplies (asset increases) and Cash (asset decreases).

2. Classify the transaction as a debit or credit

Decide whether each account will be debited or credited for the transaction.

3. Record the date and transaction details

Enter the transaction date and a brief description (like 'office supplies purchase'). This keeps your accounting clear and organised, which is vital for compliance as the GST Act requires the use of specific English phrases like 'tax invoice' on relevant documents.

4. Enter debit and credit amounts

Enter the amounts in your debit and credit columns. Check the total debit amount equals the total credit amount.

5. Post to your general ledger and review

Once you've checked your debit and credit entries are equal, post them as general ledger entries. Before finalising, run any final checks to make sure the debit and credit amounts balance, and your ledger accounts are accurate.

If you make a mistake, add a correcting journal entry to fix it.

Keep your books accurate with Xero

Manual journal entries take time and can lead to mistakes. Xero accounting software automates these entries, saves you time, and helps you trust your numbers. See your financial position in real time and focus on running your business. Try Xero for free.

FAQs on journal entries

Here are common questions and answers small business owners might have about journal entries.

How do I fill out a journal entry?

To fill out a journal entry correctly, gather your transaction information and follow this systematic process:

Required information:

• Transaction date
• Account names involved
• Transaction description
• Dollar amounts for debits and credits

Entry process:

1. Record the date when the transaction occurred
2. List accounts affected with clear descriptions
3. Enter debit amounts in the left column
4. Enter credit amounts in the right column
5. Verify totals match before saving

Pro tip:Xero accounting software automates these calculations and helps you avoid common entry errors.

What's an example journal entry?

Date: 25/10/2024

Description: Purchased office supplies for cash

Account: Office Supplies

Debit: $300

Account: Cash

Credit: $300

This example shows a typical transaction: buying office supplies for $300 in cash. Debit the 'Office supplies' account to increase expenses, and credit the 'Cash' account to reduce cash on hand.

Can I use accounting software to track journal entries?

Yes, accounting software significantly improves journal entry management by automating routine tasks and reducing errors that commonly occur with manual bookkeeping.

Key benefits:

• Automatic entries: Bank feeds create entries for most transactions
• Error prevention: Built-in checks ensure debits equal credits
• Time savings: Reduces manual data entry by up to 75%
• Real-time reporting: Instant access to updated financial statements
• Audit trails: Complete transaction history for compliance

Xero's automated journal entry features help you keep accurate books, even if you do not have accounting experience.

What are the 5 basic accounting accounts?

The five main types of accounts are assets, liabilities, equity, revenue, and expenses. Every journal entry affects at least two of these accounts.

What is the golden rule of accounting entries?

The golden rules for double-entry bookkeeping are:

• Debit the receiver and credit the giver (for personal accounts)
• Debit what comes in and credit what goes out (for real accounts)
• Debit all expenses and losses, and credit all income and gains (for nominal accounts)