What is a journal entry in accounting?
Learn what journal entries are, how debits and credits work, and how to record them accurately.
Written by Lena Hanna—Trusted CPA Guidance on Accounting and Tax. Read Lena's full bio
Published Friday 18 September 2026
Table of contents
Key takeaways
- A journal entry records a business transaction, showing the date, the accounts affected, and the amounts debited and credited
- Every entry follows double-entry bookkeeping, so total debits always equal total credits
- There are seven common types of journal entry, including simple, compound, adjusting, and closing entries
- Accounting software posts your journal entries to the general ledger automatically and helps keep debits and credits balanced
What is a journal entry?
A journal entry is a record of a business transaction. Each one shows the date, the accounts affected, and the amounts debited and credited. Journal entries form the foundation of double-entry bookkeeping, and they feed into your general ledger and financial statements.
Why journal entries matter for your business
Accurate journal entries keep small businesses organised and compliant, and they give you a clear view of how the business is doing. Here's why they're worth getting right.
- Financial accuracy: Journal entries keep your books accurate by recording every transaction in one consistent format.
- Tax compliance: Well-kept entries make it easier to meet your reporting obligations and file on time.
- Better decisions: Clear records give you a reliable view of cash flow and profit, so you can plan with confidence.
- Credibility: Organised books build trust with lenders, investors, and the tax authorities.
How journal entries work: understanding debits and credits
Debits and credits are the two sides of every journal entry. In double-entry bookkeeping, each transaction affects at least two accounts, and the total debits must always equal the total credits. A debit increases asset and expense accounts and decreases liability, revenue, and equity accounts; a credit does the opposite.
Here's how to decide whether to debit or credit an account:
- Identify the account affected and its type: asset, expense, liability, revenue, or equity.
- Decide whether that account is increasing or decreasing as a result of the transaction.
- For asset and expense accounts, record an increase as a debit and a decrease as a credit.
- For liability, revenue, and equity accounts, record an increase as a credit and a decrease as a debit.
- Repeat for each account in the transaction, then check that total debits equal total credits.
Journal entry example
A worked example makes this easier to picture. On 12 January 2026, The Cosy Cake Shop buys S$300 of baking supplies with cash. The baking supplies (asset) account increases and cash decreases by the same amount, so total debits equal total credits.
- Debit: baking supplies (asset) S$300
- Credit: cash S$300
What are the different types of journal entries in accounting?
There are seven common types of journal entry, and each one handles a different accounting situation. Here's what each type does and when you'd use it.
Simple journal entry
A simple journal entry affects exactly two accounts, with one debit and one credit for the same amount. Use it for straightforward transactions like a cash purchase.
Compound journal entry
A compound journal entry involves more than two accounts. Use it when a single event affects several accounts at once, like payroll. For example, a payroll entry might debit wage expenses while crediting cash, tax payable, and CPF (Central Provident Fund) payable. The total debits still equal the total credits.
Adjusting journal entry
An adjusting journal entry updates account balances at the end of a period. You'll use one for income or expenses that span more than one period, such as accruals, deferrals, and estimated expenses. For example, if you complete work over three months but invoice at the end, you'd record an adjusting entry each month for one-third of the revenue.
Reversing journal entry
A reversing journal entry cancels an adjusting entry from the previous period. For example, wages accrued in December and paid in January can be reversed in January to avoid double-counting the expense.
Recurring journal entry
A recurring journal entry records transactions that repeat on a schedule, such as rent, subscriptions, and loan payments. Automating recurring entries reduces manual effort and cuts the risk of errors.
Closing journal entry
A closing journal entry transfers balances from temporary accounts to permanent accounts at the end of a period. Revenue and expense account balances move to retained earnings, resetting the temporary accounts to zero for the next period.
Correcting journal entry
A correcting journal entry fixes errors in previous entries, such as a wrong amount or an entry posted to the wrong account.
How to record journal entries
Recording a journal entry is a repeatable process once you know the steps. Follow these five steps for each transaction.
- Identify the transaction and the accounts involved.
- Classify each account as a debit or a credit.
- Record the date and the transaction details.
- Enter the debit and credit amounts.
- Post the entry to your general ledger and review it, then run a trial balance to confirm your debits and credits match.
Simplify journal entries with Xero
Xero automates your journal entries, syncs them to your general ledger, and generates financial statements, so you spend less time on manual bookkeeping and more time running your business. Start today and get one month free to see how much easier your books can be.
FAQs on journal entries
Still have questions about journal entries? Here are clear answers to some of the most common ones.
What's the difference between a journal entry and a ledger entry?
A journal entry is the first record of a transaction in your journal, in date order. A ledger entry is the same information sorted by account in your general ledger, so you can see each account's running balance.
How many accounts does a journal entry need?
Every journal entry involves at least two accounts, because each transaction has a debit and a matching credit. Compound entries can involve more than two.
What is the golden rule for debits and credits?
For every entry, your total debits must equal your total credits. If the two sides don't balance, there's an error to find before you post.
Can I use accounting software to track journal entries?
Yes. Accounting software like Xero records and posts journal entries for you, and flags entries that don't balance.
What happens if I make a mistake in a journal entry?
You fix it with a correcting journal entry rather than deleting the original, which keeps a clear audit trail. Most accounting software makes this quick to do.
Do I need to make journal entries every day?
Only if you have daily transactions to record. Many small businesses batch entries weekly or monthly, and automated software can post routine entries as they happen.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.