Double-Entry Bookkeeping Online: Journal Entry Examples and the Trial Balance

Double-entry bookkeeping records every transaction in at least two accounts so that total debits always equal total credits. When a company buys 20,000 USD of stock on credit, inventory goes up by 20,000 (a debit) and the amount owed to the supplier goes up by 20,000 (a credit). Online bookkeeping software does the arithmetic and the checks, but you still need to know which side each account goes on.

This guide explains the debit and credit rules, the parts of a journal entry, six worked journal entry examples, the difference between draft and posted entries, reversals, and how to read a 2, 4 or 6 column trial balance. Examples use the IFRS chart of accounts template in Ledgeriano, with amounts in USD.

#What is double-entry bookkeeping?

Double-entry bookkeeping is the method of recording each transaction as equal debits and credits in two or more accounts, based on the accounting equation: Assets = Liabilities + Equity. Every entry keeps that equation in balance. Income and expenses are temporary equity accounts: revenue increases equity, expenses reduce it, and at year end both are closed into retained earnings.

Why it matters in practice:

• Errors show up. An entry where debits do not equal credits cannot be posted.
• Every balance has a source. Any figure in the balance sheet can be traced to the entries behind it.
• Statements come out of the ledger directly. The balance sheet, income statement and cash flow statement are built from the same postings.

#Debit and credit rules for each account type

Debits are the left side of an entry and credits are the right side; whether a debit increases or decreases an account depends on its type. This is the table to keep next to your keyboard:

A quick memory aid: DEA / LER. Dividends (drawings), Expenses and Assets live on the debit side; Liabilities, Equity and Revenue live on the credit side.

#Anatomy of a journal entry (voucher)

A journal entry, often called a voucher, has a header that describes the transaction and lines that record the amounts. Here is what each part does in an online system like Ledgeriano:

#The header

• Number: assigned automatically and in sequence within each fiscal year.
• Date: decides the fiscal year and period. A date in a closed year or before the lock date is rejected.
• Voucher type: GEN (general), SAL (sales), PUR (purchases), RCT (cash receipt), PAY (cash payment), PRL (payroll), ADJ (adjustment), plus opening and closing types used by the system. You can add your own.
• Reference: the invoice, order or bank reference, such as INV-1001.
• Description: what happened, in words someone can understand in two years.
• Currency and exchange rate: for foreign currency entries; reports convert to the base currency.
• Tags: free labels for filtering, like "shop" or "intercompany".

#The lines

Each line has an account, either a debit or a credit (never both), and optional details: a line description, a party (customer or supplier), a cost center and a project. Accounts such as trade receivables and trade payables require a party, so balances per customer and supplier are always available.

#Attachments

You can attach the source document to the entry: a PDF invoice, a photo of a receipt, a spreadsheet or a contract (up to 10 MB per file). Auditors ask for these first, and having them on the entry saves the hunt through email.

#Six journal entry examples with debits and credits

These six entries follow a new trading company, Northwind Trading, through its first month. VAT is 5% in this example. Each table is one voucher.

#1. Capital contribution

The owners pay 50,000 USD into the company's bank account for shares.

The bank (an asset) increases with a debit; share capital (equity) increases with a credit.

#2. Inventory purchase on credit with VAT

The company buys goods for 20,000 USD plus 1,000 VAT from supplier S001, payable in 30 days.

Input VAT is an asset because it will be deducted from the VAT the company collects.

#3. Rent paid from the bank

Office rent for the month, 3,000 USD, is paid by bank transfer.

#4. Monthly payroll

Gross salaries are 12,000. Employees' social security (7%, 840) and payroll tax (900) are withheld, and the employer adds its own contribution of 1,500. Net pay of 10,260 is transferred.

The 2,340 payable is the employee share (840) plus the employer share (1,500). Both liabilities are cleared when the company pays the authorities.

#5. Sale on credit with cost of goods sold

The company sells goods for 30,000 plus 1,500 VAT to customer C001. The goods cost 18,000. One SAL voucher records both the sale and the cost:

Recording COGS at the time of sale is the perpetual inventory method. With a periodic method, you would record purchases during the month and adjust inventory at the end.

#6. VAT settlement

At the end of the VAT period, output VAT (1,500) exceeds input VAT (1,000), so the company pays the 500 difference.

If input VAT were larger, the balance would stay in 1134 as a refund due. Rates and rules depend on your country; the standards page lists templates that include VAT accounts (for example the GCC and Iranian charts).

#How to record a journal entry, step by step

Recording a journal entry takes five steps, in this order:

1. Identify the source document: invoice, bank statement line, payroll sheet or contract.
2. Decide which accounts change and whether each increases or decreases.
3. Apply the debit and credit rules from the table above.
4. Check the totals: debits must equal credits to the cent.
5. Save as draft, attach the document, review, then post.

In Ledgeriano the entry form shows the running difference between debits and credits and will not post an unbalanced voucher. Validation also catches inactive accounts, parent (non-postable) accounts, missing parties and dates in closed periods. If you post entries from another system, the accounting API guide shows the same rules applied over HTTPS.

#Draft vs posted entries

A draft entry is a work in progress that can be edited or deleted and does not appear in reports by default; a posted entry is final, counts in every report and cannot be changed. The split creates a natural review step.

A common team setup: a bookkeeper records drafts during the day, and an accountant reviews and posts them, one by one or in bulk (up to 200 at a time). See roles and permissions for the full list.

Tip: Post in small batches, daily or weekly. A backlog of 600 drafts at month end means nobody really reviews them.

#Why posted entries are reversed, not edited

Posted entries are immutable so that the ledger keeps a complete history: once a figure has been reported, the correction must be visible too. To fix a posted entry you reverse it, which creates a new entry with the same lines and the debits and credits swapped, marks the original as reversed, and links the two. Then you record the correct entry.

Example: the rent in entry 3 was posted as 3,300 instead of 3,000.

1. Reverse the entry. The reversal debits 1103 for 3,300 and credits 6205 for 3,300.
2. Record a new entry: debit 6205 for 3,000, credit 1103 for 3,000.
3. The net effect is rent of 3,000, and the audit trail shows exactly what happened.

You can choose the date of the reversal, which matters if the original period is already locked. Businesses that prefer it can allow unposting in their settings (it is off by default), but reversal is the method auditors expect.

#The trial balance: 2, 4 and 6 columns

A trial balance is a list of every account with its debit or credit balance at a date; if total debits equal total credits, the ledger is arithmetically in balance. Here is Northwind's trial balance after the six entries above, in the 4 column format (period movements plus closing balances):

#Which format should you use?

• 2 columns: only the closing debit and credit balance. Good for a quick check and for preparing statements.
• 4 columns: period movements plus closing balance, as above. Good for monthly reviews.
• 6 columns: opening balance, period movements and closing balance. Best for a period inside the year, because you see where each account started.

Ledgeriano produces all three from the same data, at any level of the account tree, with CSV export. Totals are taken from one level only, so parent accounts are not double counted.

#What "balanced" does and does not prove

A balanced trial balance proves that debits equal credits. It does not prove that the right accounts were used. These errors still balance:

• Posting rent to 6201 salaries instead of 6205 rent (error of commission).
• Forgetting an invoice entirely (error of omission).
• Swapping debit and credit on both lines of an entry (reversal error).
• Entering 3,300 instead of 3,000 on both sides (error of original entry).

That is why you review account balances, reconcile the bank and check party balances, not just the totals. The financial statements guide shows how the trial balance becomes the balance sheet and income statement.

#Common journal entry mistakes and how to avoid them

1. Posting to a parent account. Use postable accounts like 6205, not the group 62. The software rejects parent accounts.
2. Receivables without a customer. Always add the party; otherwise the customer statement is wrong.
3. Gross vs net VAT. Revenue is the net amount; the VAT goes to 2131.
4. Editing history. Reverse posted entries instead of deleting and re-entering them.
5. Wrong date. An invoice dated 31 March belongs in March even if you enter it on 3 April.
6. Vague descriptions. "Payment" tells nobody anything; "Rent for March, office 4B, transfer ref 88213" does.
7. Skipping the attachment. No document, no evidence.

At year end, revenue and expense accounts are closed into retained earnings (3201) through the income summary; the year-end closing guide covers that last entry of the year. For definitions of the terms used here, see the accounting glossary, and for credit costs of recording and posting entries, see pricing.