Journal entries explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A journal entry is the first written record of a transaction in double entry book-keeping. It names the accounts affected, the amount to be debited and the amount to be credited, with a short narration. This guide gives the rules, the accounting equation behind them and twelve entries of a small trader worked to a check. It is the routine behind the monthly work of our bookkeeping and online accounting team.
Every transaction has two sides: one account is debited and another credited, for the same amount. Under the modern rule, assets, expenses and drawings increase on the debit side; liabilities, capital and income increase on the credit side. The traditional rule says debit the receiver and credit the giver for personal accounts, debit what comes in and credit what goes out for real accounts, and debit expenses and losses and credit incomes and gains for nominal accounts. Total debits must equal total credits.
The accounting equation
Assets equal liabilities plus capital: what the business owns equals what it owes to outsiders and to the owner. Income increases capital and expenses reduce it; drawings (the owner's withdrawals) also reduce it. Every transaction keeps both sides of the equation equal, which is why every entry has equal debit and credit.
The Framework (paragraphs 49 to 80) defines the five elements used to classify accounts: assets, liabilities, equity, income and expenses. Our guide to the Framework covers these definitions.
The rules of debit and credit
| Account type | Increase | Decrease | Examples |
|---|---|---|---|
| Asset | Debit | Credit | Cash, bank, stock, furniture, debtors |
| Liability | Credit | Debit | Creditors, loans, outstanding expenses |
| Capital | Credit | Debit | Owner's capital |
| Drawings | Debit | Credit | Owner's personal withdrawals |
| Income | Credit | Debit | Sales, commission received |
| Expense | Debit | Credit | Purchases, rent, salaries |
The traditional classification gives the same result:
| Class | Rule | Example |
|---|---|---|
| Personal (persons, firms, companies) | Debit the receiver, credit the giver | Goods sold to Ravi Stores on credit: debit Ravi Stores |
| Real (things: cash, goods, furniture) | Debit what comes in, credit what goes out | Furniture bought: debit furniture |
| Nominal (expenses, losses, incomes, gains) | Debit expenses and losses, credit incomes and gains | Rent paid: debit rent |
How to pass a journal entry
- Identify the accounts involved in the transaction (at least two).
- Classify each account as asset, liability, capital, drawings, income or expense.
- Decide whether each increases or decreases, and apply the rule to find debit or credit.
- Write the entry in the order: date, debit account first ("Dr"), credit account indented ("To"), amounts, and a one-line narration.
- Check that total debit equals total credit.
If more than two accounts are involved, the entry is a compound entry: the debits in total still equal the credits in total. GST is ignored in this example; our guide to accounting entries under GST shows how input and output tax accounts are added, and no GST rate is used here.
Worked example: Sharma Provisions in April 2026
The entity and all figures in this example are invented for illustration.
Sharma Provisions is a new retail shop. Its twelve transactions in April 2026 are journalised below. For a deeper look at the book itself, see what a journal entry is.
| Date | Particulars | Debit | Credit |
|---|---|---|---|
| 1 Apr | Cash A/c Dr | 3,00,000 | |
| To Capital A/c | 3,00,000 | ||
| (Owner started business with cash) | |||
| 2 Apr | Bank A/c Dr | 2,00,000 | |
| To Cash A/c | 2,00,000 | ||
| (Cash deposited in bank) | |||
| 3 Apr | Furniture A/c Dr | 40,000 | |
| To Bank A/c | 40,000 | ||
| (Furniture bought by cheque) | |||
| 5 Apr | Purchases A/c Dr | 1,20,000 | |
| To Gupta Wholesalers A/c | 1,20,000 | ||
| (Goods bought on credit) | |||
| 8 Apr | Cash A/c Dr | 50,000 | |
| To Sales A/c | 50,000 | ||
| (Goods sold for cash) | |||
| 10 Apr | Ravi Stores A/c Dr | 70,000 | |
| To Sales A/c | 70,000 | ||
| (Goods sold on credit) | |||
| 12 Apr | Rent A/c Dr | 15,000 | |
| To Bank A/c | 15,000 | ||
| (Rent paid by cheque) | |||
| 15 Apr | Gupta Wholesalers A/c Dr | 80,000 | |
| To Bank A/c | 80,000 | ||
| (Part payment to supplier by cheque) | |||
| 18 Apr | Bank A/c Dr | 45,000 | |
| To Ravi Stores A/c | 45,000 | ||
| (Cheque received from customer) | |||
| 22 Apr | Drawings A/c Dr | 10,000 | |
| To Cash A/c | 10,000 | ||
| (Owner took cash for personal use) | |||
| 25 Apr | Salaries A/c Dr | 18,000 | |
| To Cash A/c | 18,000 | ||
| (Salary paid in cash) | |||
| 28 Apr | Gupta Wholesalers A/c Dr | 5,000 | |
| To Purchase Returns A/c | 5,000 | ||
| (Goods returned to supplier) | |||
| Total | 9,53,000 | 9,53,000 |
Working of the total. Debits: 3,00,000 + 2,00,000 + 40,000 + 1,20,000 + 50,000 + 70,000 + 15,000 + 80,000 + 45,000 + 10,000 + 18,000 + 5,000 = 9,53,000. Credits are the same twelve amounts, because each entry here has one debit and one credit of equal amount.
Proof through the accounting equation. Balances after the entries are worked from the entries above:
| Item | Working | Amount |
|---|---|---|
| Cash | 3,00,000 - 2,00,000 + 50,000 - 10,000 - 18,000 | 1,22,000 |
| Bank | 2,00,000 - 40,000 - 15,000 - 80,000 + 45,000 | 1,10,000 |
| Ravi Stores (debtor) | 70,000 - 45,000 | 25,000 |
| Furniture | 40,000 | |
| Total assets | 2,97,000 | |
| Gupta Wholesalers (creditor) | 1,20,000 - 80,000 - 5,000 | 35,000 |
| Capital | 3,00,000 | |
| Add: sales 1,20,000 | 1,20,000 | |
| Less: purchases (1,20,000 - 5,000), rent 15,000, salaries 18,000 | (1,48,000) | |
| Less: drawings | (10,000) | |
| Total liabilities and capital | 35,000 + 3,00,000 + 1,20,000 - 1,48,000 - 10,000 | 2,97,000 |
Check: assets 2,97,000 = liabilities and capital 2,97,000, and total debits 9,53,000 = total credits 9,53,000. The month shows a net deduction because the stock in hand at the month-end has not been valued yet, so these figures are not a profit figure.
Common mistakes
- Reversing a personal account: debiting the supplier when goods are bought, instead of when the supplier is paid.
- Drawings in expenses: the owner's household cost belongs to drawings and not to the profit and loss account.
- Entry on one side only: the trial balance will not agree; see our article on ledger posting for the next step.
- Mixing cash and credit: a credit sale debits the customer, not cash.
- No narration: the entry cannot later be traced.
Need help with day-to-day entries?
If your books are behind or the entries are posted without a clear narration, our team can write them up and bring the ledgers current. Our bookkeeping and online accounting service handles journals, ledgers and monthly closing for small businesses.
Key takeaways
- Every entry has equal debits and credits.
- Assets, expenses and drawings increase by debit; liabilities, capital and income increase by credit.
- Personal accounts follow "receiver and giver", real accounts "comes in and goes out", nominal accounts "expenses and incomes".
- Total debits must equal total credits for the period.
- A balanced journal does not prove that every entry is right; see the trial balance article.
Read next
- Ledger posting and balancing of accounts
- Trial balance: how to prepare it
- Subsidiary books of accounts
- Accounting entries under GST
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.