Basic Accounting: Essential Journal Entries and Adjustment Entries

Fintaxman July 11, 2025

Journal

The book in which the business transactions are recorded in a chronological order, after analyzing them and classifying the benefits according to the principles of debit & credit is called JOURNAL.

In simple terms, is a book of original entry or prime entry in which transaction is first recorded in chronological order, i.e., in the order or sequence they are entered. Transactions are recorded in the journal book from the accounting vouchers that are prepared on the basis of source documents i.e., cash memo, invoice, purchase bill etc.

Journalising is the process of recording accounting transactions. As all the day to day transactions are recorded in journal, this book is also called as “Day book” or “Daily record”

Note - The transfer of journal entry to a ledger account is known as posting.

Journal Format

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount



(L.F. stands for Ledger Folio)

All the transactions related to business like Purchases, Purchase returns, sales, sales returns, cash receipts, cash payments, loans & advances taken (given), assets acquired, salaries paid are first recorded in the book of JOURNAL. Hence Journal is called as “Book of Prime Entry”.

The process of recording the business transactions in a chronological order in the journal after analyzing, classifying & identifying them as Dr. and Cr. is called entry.
All the transactions are recorded in the book of Journal are in the form of Entry.
For easy identification of the transaction a brief description is given under each entry with in brackets. (Narration)

Steps in Journalising

Step 1 – Ascertain the accounts that are affected by a transaction
Step 2 – Ascertain the nature of accounts affected.
Step 3 – Ascertain the account to be debited & credited by applying the rules of debit and credit.

As discussed in my recent blog discussing the fundamental rules of debit and credit in accounting, it’s clear that how essential these principles are required for maintaining accurate financial records. these concepts not only enhance our accounting skills but also strengthens our overall financial literacy. So, we encourage everyone to revisit the blog for deeper insight.

traditional approach

Simple Examples of Journal Entry

Ram started business and introduce capital of Rs. 1,00,000
Here two accounts will be affected with this transaction

Capital account – Which is Personal Account (As per golden rule debit the receiver and credit the giver) here business Rs. 1,00,000 receive so it is Credit.
Cash account – Which is Real Account (As per golden rule What comes in is Debit and What is Out is Credit) here business getting Rs. 1,00,000 so its Debited.

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Cash Account Dr.		1,00,000
	To Capital Account			1,00,000
	(Being the amount invested in business)

Purchase furniture from Om furniture for Rs. 10,000 paid in cash

Here two accounts will be affected with this transaction

Furniture account – Real account – (As per golden rule What comes in is Debit and What is goes out is Credit) here furniture is coming to the business so it is Debited.
Cash account – Real account – here cash is going out of the business as per golden rule in real account what is goes out is credit) so here its Credited.

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Furniture Account Dr.		10,000
	To Capital Account			10,000
	(Being furniture purchased for the business)

Paid rent Rs. 3,000 for office Building

Here two accounts will be affected with this transaction

Rent account – Nominal Account (As per golden rule debit all expense and lose and credit all income and gains) here rent is expense so it is Debited.
Cash account – Real Account (As per golden rule What comes in is Debit and What is goes out is Credit) here cash going out so it is Credited.

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Rent Account Dr.		3,000
	To Cash Account			3,000
	(Being rent paid for office building)

Purchased goods for Rs. 50,000 against cheque.

Here two accounts will be affected with this transaction

Purchase account – Nominal account – its expense as per golden rule it is Debit
Bank account – Personal account – cheque given as per golden rule it is Credit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Purchase Account Dr.		50,000
	To Bank Account			50,000
	(Being cheque issued against purchased of goods)

Sold goods for Rs. 25,000 against cheque

Here two accounts will be affected with this transaction

Sales account – Nominal account – income (as per golden rule) it is Credit
Bank account – Personal account – receive money (as per golden rule) it is debit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Bank Account Dr.		25,000
	To Sales Account			25,000
	(Being cheque received against sale of goods)

Paid Salary Rs. 50,000 for the month of December to staff by cheque.

Here two accounts will be affected with this transaction

Salary account – Nominal account – transaction nature is expense (as per golden rule) it is Debit.
Bank account – Personal account – money given by cheque (as per golden rule) it is credit.

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Salary Account Dr.		50,000
	To Bank Account			50,000
	(Being cheque issued against staff salary for Dec Month)

Interest received Rs. 1,000 in Cash

Here two accounts will be affected with this transaction

Interest account – Nominal account – Income (as per golden rule) it is Credit
Cash account – Real account – Cash come in to the business (as per rule) it is debit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Interest Account Dr.		50,000
	To Cash Account			50,000
	(Being interest received in cash)

Received Cash Rs. 10,000 from debtor Sandeep

Here two accounts will be affected with this transaction

Cash account – Real account – cash coming into the business as per golden rule it is Debit.
Sandeep account – Personal account – as per golden rule it is credit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Cash Account Dr.		10,000
	To Sandeep Account			10,000
	(Being cash received from debtor (Sandeep))

Examples for Banking transactions

Cash deposited for opening an account

Cash account – Real account – cash goes out from business so, Credit
Bank account – Personal account – bank balance is increasing business so, Debit

Bank account Dr.

To cash account

Cash withdrawn for office use

Cash account – Real account – Cash in hand increase (Comes in) so, Debit
Bank account – Personal account – Bank balance decrease (Giver) so, Credit

Cash account Dr.

To Bank account

Cash withdrawn for personal use

Bank account – Personal account – Given, so Credit.
Drawing account – Personal account – Receiver, so Debit

Drawing account Dr.

To Bank account

When the amount is not recoverable

Bad debts account – Nominal account – Loss for business so, Debit
Debtor account – Personal account – Giver so, Credit

Bad debts account Dr.

To Debtor account

Simple and compound Journal Entries

Simple Journal Entry – Journal entry in which only two accounts are affected, one account is debited and another is credited with an equal amount.
Compound Journal Entry – Journal entry in which more than two accounts are affected, one or more account is debited and one or more accounts credited or vice versa.

When a part of debt is not recoverable

Bad debt account – Nominal account – Loss – Debit
Cash account – Real account – Comes in – Debit
Mr. X account – Personal account – Giver – Credit

Bad debt account (with the amount not received) Dr.

Cash account (with the amount received) Dr.

To Mr. X account (Total amount of debtor)

(being the amount received and balance written off as bad debt, not recoverable)

Bad debt recovered

Cash account – Real account – Comes in – Debit
Bad debt recovered account – Nominal account – credit

Cash account Dr.

To Bad debt recovered account

(Being the amount earlier written off as a bad debt now recovered)

Adjustment Entries in Journal Entries

These entries are passed at the end of the accounting year to make adjustments in accounts so that final accounts show true and fair financial performance (Profit and loss) and financial position of the business.

Outstanding expenses

Expenses that relate to the current year but have not been paid till the year end. For example – wages for the year ended 31st march 2025 1,00,000. Rs. 5,000 has been paid in April 2025. Since Rs. 5,000 is yet to be paid therefore it is outstanding expenses.

Outstanding wages is a liability for the firm.
Wages account – Expense increase (as per modern approach) Debited
Outstanding wages accounts – Liability increase (as per modern approach) Credited

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
31-Mar	Wages account Dr.		5,000
	To Outstanding wages accounts			5,000
	(Being outstanding of salary booked)

Prepaid or Unexpired Expenses

Expense paid in advance are called prepaid expenses. For example – in 1st July 2024, 12000 was paid as insurance for the factory for whole year. Final accounts as on 31st march 2025. Advance payment 1st April 2025 to 30th June 2025 relates to the next year.

Prepaid expense is an asset for the firm
Prepaid expenses account – asset account – as per modern approach increase means debited
Expense account – expense account – as per modern approach decreasing means credited.

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
31-Mar	Prepaid expense account		3,000
	Expense account			3,000
	(Being prepaid insurance for period)

Income received in advance or unearned income

Income received but not earned i.e., against which sale of goods or services is yet to be made. For example, if factory is given on rent 2,40,000 per annum but during the year 3,00,000 has been received then 60,000 will be the income received in advance.

Advance income is a liability for the firm.
Rent account – expense account – increase as per modern approach - Debit
Rent received in advance account – liability account – increase as per modern approach – Credit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
31-Mar	Rent account		60,000
	To Rent received in advance account			60,000
	(Being income received in advance)

Depreciation

Due to continuous use of fixed assets, value of these assets decreases every year. This fall in value is called depreciation.

Depreciation account – expense account – as per rule of modern approach here expense increase so debit
Asset account – asset account – here assets decrease as modern approach it is credit

JOURNAL
Date	Particulars	L.F.	Dr. Amount	Cr. Amount
31-Mar	Depreciation account
	To Asset account
	(Being depreciation of assets booked)

FAQ's

What are Journal Entries in Accounting?

Journal entries are records of financial transactions in a business's accounting system. They consist of debits and credits, ensuring that the accounting equation stays balanced.

What Are Adjustment Entries?

Adjustment entries are made at the end of an accounting period to align the financial records with the accrual basis of accounting.

When Are Adjustment Entries Passed?

Usually at the end of the accounting period (monthly, quarterly, or annually), before preparing the final accounts.

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