Track 1 · Debits, credits and double entry
Your first journal entries
Record common business transactions — investment, purchases, credit sales, expenses and collections — as balanced journal entries.
You will be able to
- Analyse a transaction into the accounts it affects.
- Record it as a balanced journal entry, including compound entries.
- Avoid the most common beginner errors.
Builds on
A journal entry records one transaction: the date, the accounts debited, the accounts credited, the amounts, and a short description (ideally with the document number, so anyone can trace it back). By convention debits are listed first and credits below them.
The three-question method
Work through the same three questions every time, before touching the debit and credit columns:
- Which accounts change? Name them from the chart of accounts. Look for what was received and what was given — cash, a promise to pay, work done, an item bought.
- Does each one increase or decrease?
- Debit or credit? Apply each account's rule: assets, expenses and dividends increase with debits; liabilities, equity and revenue increase with credits.
Then check that debits equal credits. If they don't, one of the first three answers is wrong.
Compound entries
Some transactions touch more than two accounts — a laptop paid partly now and partly later, or one invoice covering several kinds of cost. A compound entry has several debits or several credits, but the totals still match.
The beginner errors to watch for
- Revenue on collection. When a customer pays an invoice, the revenue was already recorded when the work was done. The payment settles the receivable.
- Expenses on payment. Paying a supplier for something already recorded settles the payable; it isn't a new expense.
- Revenue for borrowing or investment. Loans are liabilities and shareholders' money is equity — neither is earned.
- Expensing long-lived items. A laptop or a drawing tablet will be used for years: it's equipment (an asset).
- Cash for credit transactions. If the terms say "payable in 30 days", no cash has moved yet.
| Question | Answer |
|---|---|
| Which accounts change? | Supplies (received) and Accounts payable (Lumen promised to pay) |
| Increase or decrease? | Supplies up 500; Accounts payable up 500 |
| Debit or credit? | Supplies is an asset → debit. Accounts payable is a liability → credit. |
| Balanced? | Debits 500 = credits 500 ✓ |
| Date | Account | Debit | Credit |
|---|---|---|---|
| 1 Apr | 1000Cash at bank | 20,000.00 | |
| 3000Share capital | 20,000.00 | ||
| Maya Lind and Theo Ward pay for 20,000 shares of 1 each (Share certificates 1–2) | |||
| 1 Apr | 1000Cash at bank | 18,000.00 | |
| 2500Bank loan | 18,000.00 | ||
| Northgate Bank loan received (8%, repayable over three years) (Loan agreement NB-4471) | |||
| 2 Apr | 1500Equipment | 2,880.00 | |
| 1000Cash at bank | 2,880.00 | ||
| Laptop for Theo, Brightpoint Computers, paid by debit card (BPC receipt 7718) | |||
| 3 Apr | 1350Supplies | 500.00 | |
| 2000Accounts payable | 500.00 | ||
| Atlas Office Supply: paper, ink and sketchbooks, 30 days (AOS-5510) | |||
| 8 Apr | 1100Accounts receivable | 1,200.00 | |
| 4100Service revenue | 1,200.00 | ||
| Kiln & Co. Ceramics: logo design, due in 30 days (LDS-0002) | |||
Notice that the logo invoice records revenue on 8 April, when the work is done, even though Kiln & Co. won't pay until May — and that the supplies bought on credit are an asset now and a liability until Atlas is paid. None of these entries uses an expense account: buying things that will last, or borrowing, doesn't reduce profit.
Practice
Practising as a guest — attempts aren't saved.
Exercise 1 · Journal entry
On 1 April, the day it moves in, Lumen pays April's studio rent of 800 by bank transfer. Record the entry.
Exercise 2 · Journal entry
On Friday 17 April, Lumen's first payday, it pays Maya and Theo 3,900 of salaries for the 13 working days from 1 to 17 April. Record the entry.
Exercise 3 · Journal entry
On 22 April Lumen finishes a website for Hollybrook Florists and sends invoice LDS-0004 for 3,600, payable within 30 days. Record the entry.
Exercise 4 · Journal entry
On 7 May Kiln & Co. Ceramics pays the 1,200 logo invoice (LDS-0002, 8 April) in full. Record the entry.
Exercise 5 · Journal entry
On 24 April Lumen sends Atlas Office Supply cheque 203 for the 500 it owes for the supplies bought on credit on 3 April. Record the entry.
Exercise 6 · Journal entry
On 15 April Ostrander Gym pays 1,500 in advance for a pack of class posters and social media templates that Lumen will produce in May and June. Record the entry.
Exercise 8 · Concept check
A trainee drafts the entry for Kiln & Co.'s 7 May payment of the 1,200 logo invoice as: debit Cash at bank 1,200, credit Service revenue 1,200. If it were posted, what would the error do?
Exercise 9 · Journal entry
Challenge: on 20 April Lumen buys a large-format printer costing 2,400 from Ridgeway Tech, invoice RT-8841. It hands over cheque 202 for 400 on delivery and will pay the remaining 2,000 within 30 days. Record the purchase as one entry.
Key points
- Ask: which accounts change, which direction, debit or credit — then check the entry balances.
- Revenue is recorded when earned, not when collected.
- Collections and payments settle receivables and payables; they don't create new revenue or expenses.
- Compound entries can have several debits or credits, but the totals must match.
Content review: answers and figures are checked by automated tests against the accounting engine, and the text has had an internal review against the standards; independent review by a qualified accountant is pending.