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Junior accountants are unsure which account to debit and credit, and assume a correctly passed entry proves the money exists.
Every entry has equal debits and credits chosen by the account type rules; the entry records your side only and must later be checked against outside records.
Date, voucher number, accounts debited and credited, equal amounts, and a narration with the bill, cheque or UTR reference.
Balanced entries posted to the ledger, ready to be reconciled against bank, vendor and tax records.
A journal entry is the first written record of one transaction in your books. It names the account or accounts to debit and to credit, for equal amounts, with a short narration explaining what happened. The entry is later posted to the ledger, where each account builds its balance.
What are the parts of a journal entry, and how do you decide which account is debited?
Every journal entry has six parts:
- Date of the transaction.
- Voucher number, so the entry can be found again.
- Account debited and the amount.
- Account credited and the amount, equal to the debit.
- Narration: a short note such as “Being goods sold to Mehta Traders vide invoice 112”.
- Supporting document: the invoice, bill, cheque or bank reference.
To choose the debit, Indian students learn the three golden rules:
- Personal accounts (people and firms): debit the receiver, credit the giver.
- Real accounts (assets such as cash, bank, furniture): debit what comes in, credit what goes out.
- Nominal accounts (income and expenses): debit expenses and losses, credit income and gains.
Worked example: a credit sale with GST and its receipt
On 5 August, you sell goods worth ₹25,000 plus 18% GST to a customer in the same state. GST of ₹4,500 splits into CGST ₹2,250 and SGST ₹2,250. The invoice total is ₹29,500. The customer pays by NEFT on 20 August.
Entry 1, 5 August (sale):
| Account | Debit | Credit |
|---|---|---|
| Customer (Mehta Traders) | ₹29,500 | |
| Sales | ₹25,000 | |
| Output CGST | ₹2,250 | |
| Output SGST | ₹2,250 | |
| Total | ₹29,500 | ₹29,500 |
Entry 2, 20 August (receipt):
| Account | Debit | Credit |
|---|---|---|
| Bank | ₹29,500 | |
| Customer (Mehta Traders) | ₹29,500 |
After both entries, the customer’s account is nil, the bank is up by ₹29,500, sales are up by ₹25,000 and you owe ₹4,500 of GST to the government.
Five everyday Indian entries
| Transaction | Debit | Credit | Tally voucher type |
|---|---|---|---|
| Office rent of ₹40,000 paid by NEFT | Rent | Bank | Payment |
| Bank charges of ₹500 plus 18% GST (₹90) | Bank Charges ₹500, Input GST ₹90 | Bank ₹590 | Payment |
| Cash of ₹60,000 deposited in the bank | Bank | Cash | Contra |
| September salary of ₹3,20,000 due, paid in October | Salaries | Salary Payable | Journal |
| Goods of ₹1,00,000 plus 18% GST bought on credit | Purchases ₹1,00,000, Input GST ₹18,000 | Supplier ₹1,18,000 | Purchase |
Whether input GST on bank charges can be claimed depends on the bank’s invoice reaching your GSTR-2B, so check that before booking it as an asset.
If an entry is correct, does that prove the money exists?
No. A journal entry records your side of the story only. It can be perfectly balanced and still disagree with the outside world:
- You book a ₹29,500 receipt, but the customer actually paid ₹29,205 after deducting tax, and the difference is sitting unexplained.
- You book a supplier bill, but the supplier has not uploaded the invoice, so your input GST is not in GSTR-2B.
- You book a payment on 30 September, but the bank debits it on 1 October.
That is why accounting does not stop at entries. Each balance built from them is later checked, or reconciled, against the bank statement, supplier statements and tax portals. Many errors made by new accountants come from not knowing which outside record a balance should agree with.