Journal entries · Trial Balance

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What it is: A journal entry is a written record of one transaction. It lists the account to debit, the account to credit, and the amount.

Why you need it: You write the journal entry first. Then you copy (post) it into the accounts. It shows your decision before you change the accounts.

What you do: Write the debit line first. Write the credit line below it, moved slightly to the right. Add a short note (narration) that says what the transaction was.

Example. The business pays £50 cash for printer ink. Debit Stationery expense £50. Credit Cash £50. Narration: “Printer ink paid in cash.”

Key words

Journal: The record where each transaction is first written down, showing which account is debited and which is credited, with a short explanation.Example: Dr Rent £850, Cr Cash £850 (Rent paid by bank transfer).
Narration: A short written explanation under a journal entry that says what the entry is for.Example: “(Rent paid by bank transfer)” under Dr Rent, Cr Cash.
Posting: Copying each entry from the journal into the correct ledger accounts.Example: Dr Rent £850 is posted to the debit side of the Rent account.
On credit: Bought or sold now, with payment made later. It creates an amount owed.Example: Selling £1,200 of goods on credit means the customer will pay later. Until then they owe £1,200 (a trade receivable).

Learn

A journal entry is the first place a transaction is written down. It says which account to debit, which account to credit, and how much. Later, each line is copied into the accounts. This copying is called posting.

How to lay it out

Write the debit line first.
Write the credit line underneath, moved slightly to the right.
Under both lines, write a short note in brackets that says what happened. This is called the narration.
The total of the debits must equal the total of the credits.

Steps for every transaction

Write down the accounts that change. There are always at least two.
For each account, write its type (asset, liability, equity, income or expense). Then write whether it goes up or down.
Use DEAD CLIC to choose debit or credit.
Check that the debits equal the credits.
Write the narration.

Example: A customer buys goods for £400 and will pay next month. Step 1: Trade receivables and Sales. Step 2: Trade receivables is an asset and goes up. Sales is income and goes up. Step 3: Debit Trade receivables £400. Credit Sales £400. Step 4: £400 = £400. Step 5: (Goods sold on credit to a customer.)

Common entries

Transaction	Debit	Credit
Cash sale	Cash	Sales
Credit sale (customer pays later)	Trade receivables	Sales
Buy goods on credit (pay the supplier later)	Purchases	Trade payables
A customer pays what they owe	Cash	Trade receivables
Pay a supplier what you owe	Trade payables	Cash
Pay an expense	The expense account	Cash
The owner puts money in	Cash	Capital
The owner takes money out	Drawings	Cash
Receive a loan	Cash	Bank loan
Buy a long-term asset, such as a van	The asset account	Cash, or Trade payables if paid later

“On credit” means paid later. When you sell on credit, the customer owes you (trade receivables). When you buy on credit, you owe the supplier (trade payables). It does not mean a credit entry to Cash.

Year 3 (perpetual inventory). Some businesses update their inventory record every time goods come in or go out. Then a sale needs two entries. First, record the sale at the selling price: debit Cash or Trade receivables, credit Sales. Second, remove the goods at what they cost: debit Cost of sales, credit Inventory. Goods bought are debited to Inventory, not Purchases.

Watch it explained

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Videos from YouTube tutors

These videos are made by independent tutors on YouTube, not by Trial Balance. They may use slightly different terms, for example “owner’s equity” instead of “capital”.

Worked example

(1) Goods costing £700 are sold on credit for £1,200 (perpetual inventory). (2) Wages of £400 are paid from the bank.

Account	Dr £	Cr £
Trade receivables	1,200
Sales		1,200
Cost of sales	700
Inventory		700
(Credit sale and cost of goods sold)
Wages	400
Cash		400
(Wages paid)

Practice questions

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