Journal entries in accounting: What they are and how to record them

Published Thursday 5 February 2026

Table of contents

• What is a journal entry?
• Why journal entries matter
• Understanding debits and credits
• How journal entries work
• Types of journal entries in accounting
• When to use journal entries
• Journal entry example
• How to record journal entries
• Master your journal entries with Xero
• FAQs on journal entries

Key takeaways

• Ensure every journal entry balances by making total debits equal total credits, as this fundamental rule keeps your books accurate and prevents errors from cascading through your financial reports.
• Use accounting software to automate routine journal entries like sales and payments, while creating manual entries only for period-end adjustments, error corrections, and non-cash transactions like depreciation.
• Record clear transaction descriptions with dates, reference numbers, and details about what was purchased or received, as this creates an audit trail that makes entries easy to find and review later.
• Apply the correct debit and credit rules for each account type: debits increase assets and expenses while credits increase liabilities, equity, and revenue accounts.

What is a journal entry?

A journal entry is a record of a business transaction in your accounting system. It captures what happened, when it happened, and which accounts were affected.

Each journal entry includes the amounts debited and credited, the transaction date, and the accounts involved. In double-entry bookkeeping, every transaction requires at least two entries that balance each other.

Journal entries feed directly into your general ledger and financial statements. Accurate entries mean reliable balance sheets, income statements, and tax records.

Why journal entries matter

Accurate journal entries create the foundation for every financial report your business produces. Without them, your balance sheet, profit and loss statement, and cash flow reports won't reflect reality.

Here's why journal entries are essential for your business:

• Reliable financial statements: Your reports are only as accurate as the entries behind them
• Tax compliance: Properly recorded transactions create an audit trail for tax time
• Better business decisions: Real-time visibility into your finances helps you spot trends and plan ahead
• Cash flow clarity: Knowing exactly where money comes from and goes helps you manage working capital
• Error prevention: Catching mistakes early prevents them from cascading through your accounts

Complete and correct journal entries ensure accuracy flows through to every report that uses that data. Correctly classifying expenses keeps your profit margins and tax calculations accurate.

Understanding debits and credits

Debits and credits are the two sides of every journal entry. A debit records money coming into an account or an increase in assets and expenses. A credit records money going out or an increase in liabilities, equity, and revenue.

Every journal entry must have at least one debit and one credit that equal the same amount. This balance keeps your books accurate.

Here's how debits and credits affect different account types:

• Asset accounts: Debits increase the balance, credits decrease it
• Liability accounts: Credits increase the balance, debits decrease it
• Equity accounts: Credits increase the balance, debits decrease it
• Revenue accounts: Credits increase the balance, debits decrease it
• Expense accounts: Debits increase the balance, credits decrease it

Accounting software like Xero applies these rules automatically, so you can focus on recording transactions rather than memorising which column to use.

How journal entries work

A journal entry shows when an account balance changes. Each change is entered as a 'credit' or a 'debit'. In double-entry bookkeeping, you make at least two journal entries for every transaction.

The example below shows what happens when debits and credits are made:

Your bookkeeper or accountant can explain this further. This directory can help find an accountant near you.

Types of journal entries in accounting

The type of journal entry you use depends on the transaction you're recording. The most common types include simple entries, compound entries, adjusting entries, reversing entries, recurring entries, closing entries, and correcting entries.

Here's when to use each one.

Simple journal entry

A simple journal entry affects exactly two accounts: one debit and one credit for the same amount. Use this type for straightforward transactions like cash purchases or single payments.

Compound journal entry

A compound journal entry involves more than two accounts in a single transaction. The total debits must still equal total credits, but you're recording multiple line items at once.

Payroll is a common example. A single pay run might include wage expenses, tax withholdings, superannuation contributions, and net pay. Rather than creating separate entries, a compound journal entry captures everything together.

Adjusting journal entry

An adjusting journal entry updates your account balances at the end of an accounting period. You use these to ensure your financial statements reflect transactions that span multiple periods or haven't been fully recorded yet.

Common uses include recording accrued expenses, prepaid expenses, and deferred revenue. For example, if you provide services over three months but invoice at the end, you'd record an adjusting entry each month to recognise one-third of the revenue as it's earned.

Reversing journal entry

A reversing journal entry cancels out an adjusting entry from the previous period. This simplifies recording the actual transaction when it occurs.

For example, if you accrued wages at month-end for work not yet paid, you'd reverse that entry at the start of the next month. When payroll runs, you record the full amount without manually adjusting for the accrual.

Recurring journal entry

A recurring journal entry records transactions that happen on a regular schedule, like monthly rent, insurance premiums, or subscription fees.

Most accounting software lets you set these up once and automate them. This saves time and helps you stay on top of routine entries.

Closing journal entry

A closing journal entry wraps up an accounting period by transferring balances from temporary accounts to permanent ones.

Revenue and expense accounts are temporary. They track activity for a single period. At period-end, you move their balances to retained earnings (a permanent account) and reset them to zero for the next period.

Correcting journal entry

A correcting journal entry fixes mistakes in previously recorded entries. Use this when you've posted an amount to the wrong account or recorded an incorrect figure.

The correcting entry reverses the error and records the transaction correctly, keeping your books accurate without deleting the original entry.

When to use journal entries

Most routine transactions don't require manual journal entries. Accounting software like Xero automatically creates entries when you record sales, receive payments, or reconcile bank transactions.

You'll need to create manual journal entries for:

• Period-end adjustments: Accruals, prepayments, and depreciation
• Error corrections: Fixing misposted transactions
• Non-cash transactions: Recording depreciation or writing off bad debts
• Allocations: Splitting expenses across departments or projects
• Opening balances: Setting up your accounts when you start using new software

If you're unsure whether a transaction needs a manual entry, check with your accountant. They can help you set up recurring entries for regular adjustments and identify which transactions your software handles automatically.

Journal entry example

The Cosy Cake Shop bought baking supplies worth R300 on 20 January 2021. The bookkeeper increases the balance of the baking supplies account and decreases the cash account, making a simple journal entry that shows an increase in the baking supplies account and a decrease in the cash account (the bank account) for the same amount.

Here's what the simple journal entry looks like:

How to record journal entries

Recording a journal entry correctly ensures your transaction data flows accurately into your financial reports. Follow these steps each time you create a manual entry.

1. Identify the transaction and accounts involved

Determine which accounts the transaction affects. Ask yourself: which account is receiving value, and which is giving it up? Common accounts include cash, accounts receivable, revenue, and expenses.

1. Classify each amount as a debit or credit

Apply the debit and credit rules for each account type. Remember: debits increase assets and expenses, while credits increase liabilities, equity, and revenue.

1. Record the date and transaction details

Enter the transaction date and a clear description. Good descriptions include what was purchased or received, from whom, and any reference numbers. This makes entries easy to find later.

1. Enter debit and credit amounts

Record the amounts in the appropriate columns. Your total debits must equal your total credits. If they don't balance, review your entries before posting.

1. Post to your general ledger and review

Once balanced, post the entry to your general ledger. Review the affected account balances to confirm the transaction recorded correctly. If you spot an error later, create a correcting entry rather than deleting the original.

Master your journal entries with Xero

Journal entries don't have to be complicated. With the right approach and tools, you can record transactions accurately and keep your financial records in order.

Here's what to remember:

• Journal entries record every business transaction using debits and credits.
• Debits and credits must always balance in every entry.
• Different entry types serve different purposes, from simple transactions to period-end adjustments.
• Accounting software automates routine entries and reduces errors.

Xero simplifies journal entry management by automating routine transactions, guiding you through manual entries, and flagging errors before they affect your reports. You get real-time visibility into your accounts and financial statements you can trust.

Ready to spend less time on bookkeeping? Get one month free and see how Xero can help you manage your journal entries with confidence.

FAQs on journal entries

Here are answers to common questions about journal entries.

How do I fill out a journal entry?

Enter the transaction date, account names, description, and the debit and credit amounts. Your debits and credits must balance. Accounting software like Xero guides you through this process and flags errors automatically.

What's an example journal entry?

Here's a simple journal entry for a cash purchase:

The debit to office supplies increases your expense account. The credit to cash decreases your bank balance. Both sides equal R300, so the entry balances.

Can I use accounting software to track journal entries?

Yes. Accounting software automates routine journal entries, flags errors before you post them, and generates reports directly from your recorded transactions. This saves time and reduces manual mistakes.

What are the three basic rules all journal entries must follow?

Every journal entry must have a date, at least one debit and one credit, and the total debits must equal total credits. These rules ensure your books stay balanced and your financial reports remain accurate.

When should I ask my accountant to help with journal entries?

Consult your accountant for complex transactions like asset purchases, loan arrangements, or year-end adjustments. They can also help set up recurring entries and review your books before tax time.