How to write a journal entry

Step by step

1. Identify the accounts affected. Decide which two (or more) accounts the transaction changes.
2. Decide debit and credit. Apply the double-entry rules to decide which account is debited and which is credited.
3. Write the debit first. Enter the account to be debited, with its amount in the debit column.
4. Write the credit underneath. Enter the account to be credited, slightly indented, with its amount in the credit column.
5. Add a narrative. Write a short explanation beneath, stating what the entry records.

Worked example

Buying machinery on credit: debit machinery RM12,000, credit the supplier RM12,000. Narrative: purchase of machinery on credit.

Understanding the method

A journal entry tells the ledger which accounts to change and by how much. Every transaction has two effects of equal value, so the debits equal the credits. Think of the journal as the place to work out the double entry before you touch the ledger.

Each entry has the account to debit, the account to credit, the amounts and a narrative. The narrative matters because the journal is used for items that are not routine. Examples are buying a non-current asset on credit, correcting an error, opening entries and year-end adjustments.

To choose the sides, ask what has increased and what has decreased. A debit increases an asset or an expense, and reduces a liability, capital or income. A credit does the opposite.

If you buy a delivery van on credit for RM30,000, the asset (the van) rises, so debit van RM30,000. The amount owed to the supplier rises, so credit the supplier RM30,000.

If your debits and credits do not agree, you have misjudged the effect of the transaction. It is not just an arithmetic slip.

Correction questions need two steps. First, work out what was wrongly recorded. Then write the entry that moves the figures to where they should be.

Example: rent paid of RM540 was entered in the rent account as RM450, though the cash book shows RM540. The rent account is RM90 too low. Debit rent RM90 and credit suspense RM90, because the error left the trial balance short of debits by RM90.

Two more examples. A trader takes goods costing RM260 for personal use. Inventory has left the business and the owner's stake has fallen.

Debit drawings RM260 and credit purchases RM260. A customer who has stopped trading owes RM180.

The receivable is lost and an expense arises. Debit irrecoverable debts RM180 and credit the customer RM180.

To check an entry, make sure the debits equal the credits. Then read your narrative.

If you cannot write a convincing narrative, the entry is probably wrong. For corrections, trace the effect through the suspense account to confirm the trial balance would now agree.

A common mistake is getting the amount wrong when a figure must move from one side to the other. You must both remove the wrong entry and post the right one, so the amount is doubled. Another is using a suspense account for errors that never affected the trial balance. Others are treating an asset repair as an improvement, and writing a narrative that only repeats the account names. A good narrative states the cause.

If you freeze on which account to debit in journal questions, we can help. One of our teachers can work through a set of journal entries with you and explain the reasoning behind each side. Book a trial class

Related skills

• How to prepare a trial balance
• How to correct errors using a suspense account

The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.