What Is a Journal Entry? Basics

Where journal entries fit
What goes into a journal entry

A journal entry is the record of one business transaction in your books. It lists the date, the accounts the transaction affects, the amount debited to one or more accounts and the amount credited to one or more others, and a short description. The total of the debits must equal the total of the credits. Entries are recorded in a journal first and then posted to each account in the general ledger.

Billed publishes this page. Definitions and rules are quoted from the open textbook OpenStax Principles of Accounting, Volume 1, opened on October 29, 2026. For how a specific transaction should be recorded in your business, ask your accountant.

Where journal entries fit

OpenStax describes the journal this way: "A journal is the first place information is entered into the accounting system." Its glossary defines a journal as a "record of all transactions" and the general ledger as a "comprehensive listing of all of a company's accounts with their individual balances".

Moving entries from the journal to the ledger is called posting, which OpenStax defines as taking "all transactions from the journal during a period" and moving "the information to a general ledger (ledger)".

What goes into a journal entry

OpenStax lists these formatting rules for a journal entry:

the date the transaction occurred;
the debit account titles first, on the left;
the credit account titles after the debits, indented, on the right;
at least one debit and at least one credit;
a short description of the transaction.

The rule that holds it all together: "The dollar value of the debits must equal the dollar value of the credits or else the equation will go out of balance." OpenStax's glossary calls this the double-entry accounting system, which "requires the sum of the debits to equal the sum of the credits for each transaction".

An entry with "only one debit account and one credit account" is a simple entry. When there is "more than one account listed under the debit and/or credit column", it's a compound entry.

Debit or credit: which side increases each account

A debit is the left side of an account and a credit is the right side. Whether a debit increases or decreases an account depends on the account type. From OpenStax:

Assets (cash, accounts receivable, equipment): "assets increase on the debit side and decrease on the credit side".
Liabilities (accounts payable, unearned revenue): "A liability account increases on the credit side", and "Liabilities decrease on the debit side".
Revenue: "Revenue accounts increase on the credit side".
Expenses: "Expense accounts increase with debit entries."
Equity: revenue "increases equity", so it increases on the credit side, as does an owner's investment recorded as common stock.

These rules keep the accounting equation in balance. In OpenStax's words, "assets must equal the sum of liabilities and equity."

Worked example (sample figures)

A sample design studio, invented for this example, completes a logo project and invoices the client $2,400 on March 3. The client pays by card on March 20. The card processor deducts a $70 fee (a sample figure), so $2,330 reaches the bank.

Entry 1, March 3: invoice sent. The studio has earned revenue and the client owes it money.

Debit Accounts Receivable: $2,400
Credit Service Revenue: $2,400
Description: Invoice 1042, logo design

Accounts receivable is an asset, so it increases with a debit; revenue increases with a credit. Debits $2,400 = credits $2,400.

Entry 2, March 20: payment received. The client no longer owes the money, the bank balance goes up, and the processing fee is an expense.

Debit Cash: $2,330
Debit Payment Processing Fees (expense): $70
Credit Accounts Receivable: $2,400
Description: Payment of invoice 1042, card

This is a compound entry, with two debits and one credit. Debits $2,330 + $70 = $2,400, which equals the $2,400 credit.

After posting both entries to the ledger:

Accounts Receivable: $2,400 debit − $2,400 credit = $0 owed on this invoice.
Cash: up $2,330.
Service Revenue: $2,400.
Payment Processing Fees: $70.

Revenue of $2,400 less the $70 fee leaves $2,330, the same as the increase in cash.

Common mistakes to check for

The entry doesn't balance: debits and credits differ, so the books are out of balance.
Debit and credit swapped: for example, crediting cash when money came in.
Wrong account: a cost posted to the wrong expense account, or a payment received posted to revenue instead of to accounts receivable, which counts the same sale twice.
Wrong date: an entry dated in the wrong month moves revenue or expenses into the wrong period.
No description: without one, the entry is hard to trace back to the invoice, bill or receipt behind it.

Where Billed fits

The documents behind journal entries such as the ones above are invoices, payments and receipts. Billed's invoice software page describes creating an invoice and sending it "to your client by email". It also says that when "a client pays by check or cash, record it as an offline payment so all your income is in one place". Billed's financial reporting page says: "See your partially paid, past due and paid invoices in a glance with Invoice reports."

The Billed pages I checked (/features/, /invoice-software/ and /financial-reporting/) don't describe journal entries or a general ledger. Your accountant or accounting software records the entries; Billed's expense tracking page says its reports "can be filtered by date range and exported for your accountant, bookkeeper or tax software."

When this guide isn't for you

This is an introduction for small business owners who want to read their books or talk to their accountant. Adjusting entries, closing entries and industry-specific rules call for your accountant's judgment.

Frequently Asked Questions

What is a journal entry in simple terms?

It's the record of one business transaction in your books: the date, the accounts affected, the amount debited and credited to each, and a short description. The total of the debits must equal the total of the credits.

What is the difference between a journal entry and a ledger?

The journal records each transaction in date order as it happens. The general ledger lists every account with its balance. Posting moves the amounts from the journal entries into the ledger accounts.

How do I know whether to debit or credit an account?

It depends on the account type. Assets and expenses increase with a debit. Liabilities, revenue and equity increase with a credit. So cash coming in is a debit to cash, and money earned from a client is a credit to revenue.

What is a compound journal entry?

An entry with more than one account in the debit column, the credit column or both. In this page's sample, a card payment of $2,400 with a $70 fee debits cash $2,330 and fees $70, and credits accounts receivable $2,400.

Does sending an invoice create a journal entry?

Under accrual accounting, an invoice for work done is recorded as a debit to accounts receivable and a credit to revenue, as in this page's sample. When the client pays, cash goes up and accounts receivable goes down. Ask your accountant which method your business uses.

Was this article helpful?

What Is a Journal Entry in Accounting? Debits, Credits and an Example