Key Concepts
A journal is the first place a transaction is formally recorded. It is a chronological list of every transaction based on source documents, showing exactly which account to debit and which to credit.
Journal format:
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| YYYY | |||
| MMM DD | Account to be debited | XX | |
| Account to be credited | XX |
Rules:
- Record in date order (earliest first).
- Always write the debit entry first.
- Write the credit entry on the next line below.
Step-by-step process:
- Identify all accounts affected.
- Classify each account (asset / liability / equity / income / expense).
- Decide whether each account increases or decreases.
- Apply the DR/CR rules of the double entry system.
- Verify: total DR = total CR.
Note — everyday names vs account names
A question often describes something by its everyday name. Record it under the correct standard account — this applies to assets, expenses, and income alike:
| Category | Everyday name in the question | Standard account |
|---|---|---|
| Asset | Office furniture, shop fittings | Fixtures and fittings |
| Asset | Delivery van, lorry, company car | Motor vehicles |
| Asset | Computer, printer, photocopier | Office equipment |
| Expense | Insurance premium paid | Insurance expense |
| Expense | Advertising or promotion costs | Advertising expense |
| Income | Overdue / late-payment fee charged to a customer | Interest income |
| Income | Commission earned | Commission income |
Choosing the right account is part of recording the transaction correctly — don't just copy the everyday name into the entry.
Sales (cash or credit) — two pairs of entries required:
Every sale must record both:
- The revenue side: DR Trade receivables — [Customer] (credit sale) / DR Cash in hand or Cash at bank (cash sale) / CR Sales revenue
- The cost side: DR Cost of sales / CR Inventory
This is because inventory and cost of sales are updated with every transaction — the moment goods are sold, the cost of those goods moves out of inventory and into cost of sales.
Journal format — always in this order:
- Date (chronological — earliest first)
- Debit entry first
- Credit entry on the next line below
Sales (cash or credit) always need two pairs of entries:
- Revenue: DR Trade receivables — [Customer] (credit sale) / DR Cash in hand or Cash at bank (cash sale) / CR Sales revenue
- Cost: DR Cost of sales / CR Inventory
| Date | Transaction |
|---|---|
| 3 Jan | Deepa invested $30,000 cash into the business bank account. |
| 8 Jan | Bought goods costing $6,000 from Arjun on credit. |
| 10 Jan | Bought a delivery van for $18,000, paying by cheque. |
| 15 Jan | Sold goods worth $8,000 to Hui Lin on credit. The goods cost $4,000. |
| 20 Jan | Paid Arjun $6,000 by cheque. |
| 25 Jan | Deepa withdrew goods costing $500 for her personal use. |
Journal of Firefly Traders — January 2025
| Date | Particulars | Dr ($) | Cr ($) |
|---|---|---|---|
| 2025 | |||
| 3 Jan | Cash at bank | 30,000 | |
| Capital | 30,000 | ||
| 8 Jan | Inventory | 6,000 | |
| Trade payables — Arjun | 6,000 | ||
| 10 Jan | Motor vehicles | 18,000 | |
| Cash at bank | 18,000 | ||
| 15 Jan | Trade receivables — Hui Lin | 8,000 | |
| Sales revenue | 8,000 | ||
| Cost of sales | 4,000 | ||
| Inventory | 4,000 | ||
| 20 Jan | Trade payables — Arjun | 6,000 | |
| Cash at bank | 6,000 | ||
| 25 Jan | Drawings | 500 | |
| Inventory | 500 |
10 Jan: The question describes the asset as a "delivery van", but it is recorded under the standard account Motor vehicles — not "Delivery van". Recording everyday item names under the correct account is part of journalising correctly.
15 Jan: Two pairs of entries are needed — one for the revenue (Business earned income, expects to receive money later) and one for the cost (goods leave inventory). Without the cost entry, inventory would be overstated.
25 Jan: Drawings of goods are recorded at cost — the price the business paid for them, not the selling price. The Inventory account is credited to show the goods have left the business.
Pairing the wrong accounts for a sale. The most common error is debiting Trade receivables and crediting Inventory in a single entry. The two entries for a sale never cross — Trade receivables always pairs with Sales revenue (revenue entry), and Cost of sales always pairs with Inventory (cost entry). Mixing them up misstates both income and assets.
Recording only the revenue entry for a credit sale, forgetting the cost entry. Every sale requires both entries — the revenue entry and the cost entry together. Missing the cost entry leaves inventory overstated and cost of sales understated.
Debiting Capital instead of Drawings when the owner takes out assets for personal use. Capital records the owner's contributions to the business; Drawings records withdrawals. When the owner takes cash or goods out, debit Drawings — not Capital.