Journal entry examples with answers
The two rules you need
| Account type | A debit… | A credit… |
|---|---|---|
| Assets (cash, what customers owe you, equipment) | increases it | decreases it |
| Expenses (rent, supplies, fees) | increases it | decreases it |
| Liabilities (bills you owe, credit cards, loans) | decreases it | increases it |
| Equity (the owner's share) | decreases it | increases it |
| Income (sales) | decreases it | increases it |
Every journal entry has at least one debit and one credit, and the totals are equal. That's why the accounting equation always balances.
Ten examples: try them first
Maple Street Coffee is a small café. For each transaction, decide which account is debited and which is credited.
- The owner puts $10,000 of her own money into the business bank account.
- The café buys an espresso machine for $4,800, paid from the bank.
- The café pays $2,000 rent from the bank.
- Walk-in customers pay $350 by card for coffee and pastries.
- The café sends an office customer an invoice for $240 of catering, due in 30 days.
- That customer pays the $240 invoice.
- A coffee bean supplier sends a $640 bill, due in 15 days.
- The café pays the $640 bill from the bank.
- The owner buys $85 of cleaning supplies with the business credit card.
- The owner takes $500 from the business for personal use.
The answers
| # | Debit | Credit | Why |
|---|---|---|---|
| 1 | Checking $10,000 | Owner's investment (equity) $10,000 | Cash goes up; the owner's share goes up |
| 2 | Equipment (asset) $4,800 | Checking $4,800 | One asset is swapped for another: the machine will be used for years |
| 3 | Rent expense $2,000 | Checking $2,000 | An expense goes up; cash goes down |
| 4 | Payments to deposit (or Checking) $350 | Sales income $350 | The sale is made and paid for at the same time |
| 5 | Accounts receivable $240 | Catering income $240 | The income is earned now; the customer owes you |
| 6 | Checking $240 | Accounts receivable $240 | Cash comes in; the customer no longer owes you. No new income |
| 7 | Cost of goods sold $640 | Accounts payable $640 | The cost is recorded now; you owe the supplier |
| 8 | Accounts payable $640 | Checking $640 | You owe less; cash goes down. No new expense |
| 9 | Cleaning supplies expense $85 | Credit card (liability) $85 | An expense goes up; what you owe the card company goes up |
| 10 | Owner's draw (equity) $500 | Checking $500 | The owner's share goes down; cash goes down. It isn't an expense |
Examples 6 and 8 are the ones beginners miss most. Receiving a customer's payment isn't new income, and paying a bill isn't a new expense: both were recorded when the invoice or bill was entered.
Journal entries in QuickBooks Online
In QuickBooks Online you rarely type these entries yourself. Invoices, bills, payments and expenses make the debits and credits for you. Manual journal entries are mostly for adjustments an accountant asks for.
- Select + Create, then Journal entry.
- On the first line, choose an account and enter the amount in Debits.
- On the next line, choose the other account and enter the same amount in Credits.
- Add a memo that says why, check the totals match, then select Save and close.
Intuit's advice: if you're not sure which accounts to debit or credit, ask your accountant before saving.
Common questions
What is a journal entry in simple terms?
A record of one transaction that shows which accounts went up or down and by how much, with debits on one side and credits on the other. The two sides always add up to the same total.
Is paying a bill an expense?
Not again. The expense was recorded when the bill was entered. Paying it reduces accounts payable and cash.
Is an owner's draw an expense?
No. Money the owner takes out reduces the owner's equity. It doesn't appear on the profit and loss report.
Why must debits equal credits?
Every transaction affects at least two accounts, and keeping the two sides equal keeps the accounting equation (assets = liabilities + equity) in balance.
Related guides
Sources
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