Lesson
Learn how to write transactions in proper debit and credit format.
A journal entry is the first formal record of a business transaction in accounting books.
Concept explanation
A journal entry is the first formal record of a business transaction in accounting books.
Simple line: journal entry means writing which account is debited and which account is credited.
Every journal entry has at least one debit and one credit.
Total debit amount must equal total credit amount.
Debit Account A/c Dr. Amount
To Credit Account A/c Amount
Example: Purchases A/c Dr. Rs.10,000
To Cash A/c Rs.10,000
Debit account is written first.
Credit account starts with To.
Amounts should be equal.
Each account should be written clearly.
Dr. shows the account being debited.
To shows the account being credited.
To is important in traditional journal format.
It helps students and teachers quickly see the debit side and credit side.
Step 1: read the transaction carefully.
Step 2: identify the accounts affected.
Step 3: find the account type: Asset, Liability, Capital, Expense, or Income.
Step 4: apply the debit-credit rule.
Step 5: write the debit account first.
Step 6: write the credit account with To.
Step 7: check debit total = credit total.
Riya's stationery shop has three transactions.
Transaction 1: Riya buys goods for cash Rs.10,000. Accounts affected are Purchases and Cash. Purchases is debited. Cash is credited.
Transaction 2: Riya sells goods to Amit Rs.5,000. Accounts affected are Amit and Sales. Amit is debited. Sales is credited.
Transaction 3: Riya pays rent Rs.2,000. Accounts affected are Rent and Cash. Rent is debited. Cash is credited.
Every time, we first understand the transaction, then identify accounts, then write the entry.
Sometimes one transaction affects more than two accounts. This is called a compound journal entry.
Example: Received Rs.9,500 from Mohan in full settlement of Rs.10,000.
Cash A/c Dr. Rs.9,500
Discount Allowed A/c Dr. Rs.500
To Mohan A/c Rs.10,000
Cash received is debited. Discount allowed is a loss, so it is debited. Mohan's account is credited because his receivable is settled.
Total debit = Rs.9,500 + Rs.500 = Rs.10,000. Total credit = Rs.10,000. So the entry is balanced.
Another example: Bought goods Rs.10,000 plus GST 18% for cash.
Purchases A/c Dr. Rs.10,000
Input GST A/c Dr. Rs.1,800
To Cash A/c Rs.11,800
Purchases increased. Input GST is claimable tax credit. Cash went out.
Visual flow
Read transaction
Identify accounts
Find account types
Apply rules
Write debit first
Write credit with To
Check totals
Solved examples
Example 1
Cash A/c Dr. Rs.50,000 To Capital A/c Rs.50,000
Cash increased.
Capital increased.
Example 2
Purchases A/c Dr. Rs.10,000 To Cash A/c Rs.10,000
Purchases increased.
Cash decreased.
Example 3
Wages A/c Dr. Rs.3,000 To Cash A/c Rs.3,000
Wages is an expense.
Cash went out.
Example 4
Raju A/c Dr. Rs.12,000 To Sales A/c Rs.12,000
Raju becomes debtor.
Sales income increased.
Example 5
Cash A/c Dr. Rs.5,000 To Raju A/c Rs.5,000
Cash increased.
Raju's amount receivable decreased.
Avoid these
Practice prompts
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Now that you know the journal entry format, learn how cash and bank transactions are recorded.
Continue to Cash Book