How to Record Journal Entries in Accounting: A Practical Small-Business Guide

Transactions commonly handled through standard software workflows

Depending on the accounting system and setup, you may not need a manual journal when you:

• create a customer invoice;
• enter a supplier bill;
• record a customer payment;
• pay a vendor;
• record an ordinary expense; or
• process or reconcile supported bank activity.

For businesses using cloud accounting software, NenoBooks' online bookkeeping services currently support Xero, QuickBooks Online, FreshBooks, Wave, Sage, and Zoho Books.

When manual journal entries are more common

A manual journal may be appropriate when you need to:

• reclassify an amount between accounts;
• correct certain bookkeeping errors;
• make a period-end adjustment;
• record an accountant-directed adjustment;
• record an item that is not handled appropriately by a standard transaction form; or
• make another supported adjustment for which the accounting treatment is already understood.

Do not use a manual journal simply because a transaction looks unfamiliar.

When to involve an accountant

If the uncertainty is about which accounting treatment is correct, not merely where to click in the software, involve your accountant or CPA.

That is particularly important for entries involving matters such as:

• revenue recognition;
• depreciation policy;
• complex accruals;
• deferred revenue;
• financing arrangements;
• equity or ownership transactions;
• unusual tax-related treatment;
• significant prior-period corrections; or
• unclear cutoff between accounting periods.

Knowing how debits and credits work does not by itself determine the appropriate accounting policy.

Assets

Assets include resources such as Cash, Accounts Receivable, and Equipment.

An increase in a normal asset account is generally a debit. A decrease is generally a credit.

Liabilities

Liabilities include amounts the business owes, such as Accounts Payable and Loans Payable.

An increase in a normal liability is generally a credit. A decrease is generally a debit.

Equity

Normal increases in equity are generally recorded as credits and decreases as debits.

The specific account depends on the business's entity structure and chart of accounts.

Revenue

Revenue accounts normally increase with a credit.

A straightforward $2,500 credit sale, for example, could debit Accounts Receivable and credit Service Revenue.

Expenses

Expense accounts normally increase with a debit.

If a business pays $800 of rent immediately, Rent Expense may be debited and Cash credited.

1. Start with the business event and supporting record

Do not begin by guessing an account.

First establish what actually happened.

Useful supporting records can include:

• invoices;
• receipts;
• bills;
• bank or credit-card records;
• loan statements;
• contracts;
• owner contribution records; or
• documentation supporting an approved adjustment.

Ask: What business event am I trying to represent in the books?

NenoBooks' published monthly-bookkeeping process follows the same broader principle: statements are used together with the accounting file and agreed supporting records rather than being treated as the only source of truth.

2. Check whether the transaction has already been recorded

Before adding a manual journal, review the accounting software.

Has an invoice, bill, payment, expense form, bank workflow, or previous journal already posted the activity?

This check helps prevent duplicate transactions.

3. Identify the accounts affected

Determine which general-ledger accounts change because of the transaction.

For a cash rent payment, the accounts might be Rent Expense and Cash.

For a loan payment, the transaction could affect Loan Payable, Interest Expense, and Cash.

Use the existing chart of accounts when an appropriate account already exists.

4. Determine whether each account increases or decreases

Before thinking about debits and credits, describe the economic effect.

For example: Rent Expense increases; Cash decreases. Or: Loan Payable decreases; Interest Expense increases; Cash decreases.

This intermediate step makes debit-and-credit decisions easier.

5. Apply the debit and credit rules

Now apply the account-type framework.

For an $800 cash rent payment:

• Debit Rent Expense: $800
• Credit Cash: $800

6. Enter the date, accounts, amounts, and memo

Use the appropriate transaction or accounting-period date based on the records and applicable accounting treatment.

Write a memo that allows another reviewer to understand the entry later.

Instead of “Adjustment,” use something more specific, such as: Reclassify June software subscription from Office Supplies to Software Expense; vendor invoice INV-1042.

7. Confirm that total debits equal total credits

Add the debit amounts. Add the credit amounts. The totals must agree.

But balancing proves only that debits equal credits. It does not prove that the accounts, amount, date, or accounting treatment are correct.

8. Review the ledger effect and reconcile where appropriate

After posting, review the affected accounts.

Ask:

• Did the intended balance increase or decrease?
• Does the entry appear twice?
• Does the description explain what happened?
• Does the resulting account balance make sense?

Where an account can be compared with an external record—such as a bank, credit card, or supported loan balance—include it in the appropriate reconciliation process.

Example 1: Owner contributes cash

Assume an owner contributes $10,000 in cash to the business.

Cash increases, so Cash is debited. The appropriate equity account increases, so it is credited.

Check: Confirm that the transaction is genuinely an owner contribution and that the equity account matches the business's entity structure and chart of accounts.

Example 2: Business pays rent

Assume the business pays $800 of office rent from its bank account.

In accounting software, this may be recorded through an expense, bank, bill-payment, or similar standard workflow rather than through a manual journal.

Example 3: Customer invoice or credit sale

Assume the business provides $2,500 of services and invoices the customer.

Software check: If you create the invoice through the accounting system, the software may already create these ledger postings. Do not add another manual journal unless there is a valid accounting reason.

Example 4: Loan payment with principal and interest

Assume a $1,200 loan payment consists of $1,000 principal and $200 interest.

Common mistake: Recording the full $1,200 as an expense would fail to distinguish repayment of principal from interest expense.

Use lender records or other appropriate documentation for the allocation. Do not estimate the split merely to make an entry balance.

Example 5: Reclassifying a miscoded expense

Assume a $300 software subscription was originally recorded as Office Supplies Expense, but the established chart of accounts uses Software Expense.

This is an illustrative accounting example, not a NenoBooks customer case study.

NenoBooks' catch-up and cleanup bookkeeping includes correcting miscoded bookkeeping records within the agreed scope.

Example 6: Simple accrued expense adjustment

Assume the business incurred $450 of utilities during the month but has not yet received or recorded the bill.

If accrual treatment is appropriate and has been confirmed, an illustrative entry could be:

Professional-review warning: Adjusting entries can depend on accounting periods, estimates, and policy decisions. A generic example is not a substitute for determining the proper accounting treatment for a specific business.

NenoBooks' accrual-oriented bookkeeping scope permits CPA-directed journal-entry support where agreed, while accounting-policy decisions and licensed professional judgment remain outside NenoBooks' bookkeeping scope.