How to Record Journal Entries

What Is a Journal Entry?

A journal entry is the record of a single business transaction in an accounting system. Every time money moves, an asset changes hands, or an obligation is created, it gets recorded as a journal entry.

Each entry includes: - Date of the transaction - Accounts affected (at least two) - Debit and credit amounts (must be equal) - Description explaining what happened

The Golden Rule: Debits Must Equal Credits

This is the foundation of double-entry bookkeeping. Every journal entry must balance — the total debits must equal the total credits. If they don't, something is wrong.

This isn't arbitrary. It comes directly from the accounting equation:

Assets = Liabilities + Equity

Every transaction affects at least two sides of this equation, and the entry must keep it balanced.

Which Accounts Get Debited? Which Get Credited?

This is where most students get stuck. Here's the pattern:

Memory trick: Assets and Expenses are on the left side — they increase with debits (left side of the entry). Everything else increases with credits (right side).

Worked Example 1: Cash Sale

Scenario: Al-Saqr Trading received SAR 15,000 cash from a customer for consulting services performed today.

Analysis: 1. Cash (an asset) is increasing → Debit Cash 2. Service Revenue is being earned → Credit Service Revenue

The Entry:

Why it works: Assets went up (debit), revenue went up (credit). Debits equal credits. The accounting equation stays balanced.

Worked Example 2: Purchasing Equipment on Credit

Scenario: A company bought office equipment for SAR 50,000, paying SAR 20,000 cash and signing a promissory note for the remaining SAR 30,000.

Analysis: 1. Equipment (an asset) is increasing by 50,000 → Debit Equipment 2. Cash (an asset) is decreasing by 20,000 → Credit Cash 3. Notes Payable (a liability) is increasing by 30,000 → Credit Notes Payable

The Entry:

Why it works: One debit (50,000) = two credits (20,000 + 30,000). Assets increased net 30,000, and liabilities increased 30,000. Equation balanced.

Worked Example 3: Receiving Payment on Account

Scenario: Oceanview Resort received SAR 8,000 from a corporate client paying off an outstanding invoice.

Analysis: 1. Cash (an asset) is increasing → Debit Cash 2. Accounts Receivable (an asset) is decreasing → Credit Accounts Receivable

The Entry:

Key insight: No revenue is recorded here. The revenue was already recognized when the service was performed. This entry just records the cash collection.

Common Mistakes Students Make

1. Confusing revenue recognition with cash collection Revenue is earned when the work is done, not when the cash arrives. If you perform a service in March and get paid in April, the revenue journal entry belongs in March.

2. Reversing debits and credits The most common error. Remember: assets and expenses increase with debits. Liabilities, equity, and revenue increase with credits.

3. Entries that don't balance If your debits don't equal your credits, the entry is wrong. Always check the totals before posting.

4. Using the wrong accounts Cash received isn't always revenue. Payment made isn't always an expense. Think about what's actually happening in the transaction before picking accounts.

Practice Problems

Test your understanding with these scenarios. Try recording the journal entry before checking the answer.

Problem 1: A company paid SAR 6,000 for three months of office rent in advance. *Hint: What kind of asset did the company create by prepaying?*

Problem 2: A client paid SAR 25,000 upfront for a project that hasn't started yet. *Hint: Has the company earned this revenue yet? What liability does this create?*

Problem 3: The company received a SAR 4,200 electricity bill, due in 30 days. *Hint: An expense has been incurred. A liability has been created. No cash moved.*

Want instant feedback on your answers? Practice these exact scenarios on Accountery — the platform checks your entries in real time and tells you exactly where you went right or wrong.