Key takeaways
What this article covers, in order:
- Why should an owner care about journals?
- Debits and credits without the headache
- How to read a journal
- Seven journal entries you'll actually meet
- When shouldn't you use a journal?
- How HelloBooks helps
A journal entry is a record of money moving between accounts, where the debits always equal the credits. You don't need to write many yourself, but you'll see them from your bookkeeper and accountant, and understanding seven common ones lets you read your own books with confidence. Here are journal entries explained in plain English, debits and credits first, then those seven entries with real numbers.
Why should an owner care about journals?
Chloe runs an upholstery business in Launceston. At the end of Sep 2026 her bookkeeper sent through a list of "adjusting journals" with a note: "Please review." Chloe looked at it, saw words like "accumulated depreciation" and "customer deposits liability", and replied "Looks fine!"
It probably was fine. But one of those journals reduced her profit by $1,320, and she didn't know why. If you're signing off on your books, or just want to know where the numbers come from, it's worth an hour to understand what you're looking at.
Debits and credits without the headache
Forget "debit means money out". In bookkeeping, debit just means left column and credit means right column. Every entry has at least one of each, and the totals always match.
What changes is which side makes an account go up:
| Account type | A debit... | A credit... |
|---|---|---|
| Assets (bank, stock, equipment, receivables) | Increases it | Decreases it |
| Expenses | Increases it | Decreases it |
| Liabilities (loans, payables, customer deposits) | Decreases it | Increases it |
| Income | Decreases it | Increases it |
| Equity (owner's capital, retained profits) | Decreases it | Increases it |
That's the one table worth remembering. Everything below follows from it.
Your bank statement uses the words the other way round, by the way. When the bank "credits" your account, from the bank's side they owe you more. In your own books, that same deposit is a debit to your bank account. It confuses everyone at first.
How to read a journal
Every journal has the same parts:
- Date: which period it belongs to
- Accounts: at least two
- Debit and credit amounts: equal in total
- Narration: a short description of why. If there isn't one, ask for one.
Read it as a sentence: "We increased this and decreased that, because..."
Seven journal entries you'll actually meet
All examples leave GST out to keep the numbers clean. In your real books, keep GST coded correctly; your BAS agent or accountant handles lodgement.
1. A customer pays a deposit before the work is done
On 2 Oct 2026 a customer pays Chloe a $1,800 deposit on a $3,600 reupholstery job. She hasn't done the work, so it isn't income yet. It's money she owes back if she doesn't deliver.
| Account | Debit | Credit |
|---|---|---|
| Business bank account | $1,800.00 | |
| Customer deposits (liability) | $1,800.00 | |
| Total | $1,800.00 | $1,800.00 |
On 20 Oct 2026 she finishes the job and invoices the full $3,600, then applies the deposit against it:
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | $3,600.00 | |
| Sales | $3,600.00 | |
| Customer deposits (liability) | $1,800.00 | |
| Accounts receivable | $1,800.00 | |
| Total | $5,400.00 | $5,400.00 |
The customer now owes $1,800 ($3,600 less the $1,800 deposit), the deposits liability is back to zero, and the full $3,600 of income lands in Oct 2026, when the work was done.
2. Depreciation on equipment
Chloe bought an industrial sewing machine for $7,200. Her accountant has said to depreciate it evenly over five years for her management books, which is $7,200 ÷ 60 months = $120 a month.
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | $120.00 | |
| Accumulated depreciation, equipment | $120.00 | |
| Total | $120.00 | $120.00 |
No money moves. The machine's book value just goes down by $120 each month, and that slice of its cost shows up as an expense. How depreciation is treated for tax can differ; that's your accountant's call.
3. Fixing something coded to the wrong account
A $186.50 fabric purchase was coded to "Motor vehicle expenses" by mistake.
| Account | Debit | Credit |
|---|---|---|
| Materials | $186.50 | |
| Motor vehicle expenses | $186.50 | |
| Total | $186.50 | $186.50 |
That said, if the original transaction is in a period that isn't locked, it's usually tidier to just recode it. A journal is better when the period is closed or the change needs to be visible as a correction.
4. Writing off a customer who won't pay
This was the $1,320 Chloe didn't understand. A customer moved interstate, ignored three reminders, and the debt was judged uncollectable.
| Account | Debit | Credit |
|---|---|---|
| Bad debts expense | $1,320.00 | |
| Accounts receivable | $1,320.00 | |
| Total | $1,320.00 | $1,320.00 |
Receivables drop by $1,320 and profit drops by the same. If the original invoice included GST, let your BAS agent or accountant know about the write-off.
5. A stocktake that doesn't match the books
Chloe's books say she holds $4,850 of fabric. Her count at 30 Sep 2026 comes to $4,410. The $440 gap is offcuts, waste and a damaged roll.
| Account | Debit | Credit |
|---|---|---|
| Cost of goods sold (stock adjustment) | $440.00 | |
| Inventory | $440.00 | |
| Total | $440.00 | $440.00 |
Inventory now matches the count. If gaps like this keep appearing, look at the process, not just the journal.
6. The owner puts a personal asset into the business
Chloe starts using her own laptop purely for the business. She and her accountant agree its value is $900.
| Account | Debit | Credit |
|---|---|---|
| Computer equipment | $900.00 | |
| Owner's capital | $900.00 | |
| Total | $900.00 | $900.00 |
The business gains an asset, and Chloe's investment in the business goes up by the same amount. No cash changes hands. For a company, this would normally be handled differently, so check with your accountant.
7. Accruing a bill, then reversing it
Chloe's Oct 2026 phone bill of $95 won't arrive until mid Nov 2026. To get it into the right month, at 31 Oct 2026:
| Account | Debit | Credit |
|---|---|---|
| Telephone and internet | $95.00 | |
| Accrued expenses | $95.00 | |
| Total | $95.00 | $95.00 |
On 1 Nov 2026 the accrual is reversed, so that when the real bill is entered it isn't counted twice:
| Account | Debit | Credit |
|---|---|---|
| Accrued expenses | $95.00 | |
| Telephone and internet | $95.00 | |
| Total | $95.00 | $95.00 |
Oct 2026 carries the cost, Nov 2026 nets to zero once the bill arrives, and the liability is cleared.
When shouldn't you use a journal?
This matters as much as knowing how to write one.
- Don't journal anything that went through the bank. Bank transactions should come in through the feed or a statement import and be categorised or matched there. A journal that credits your bank account creates a line your bank statement will never show, and your reconciliation breaks.
- Don't journal sales or supplier bills. Use invoices and bills, so receivables, payables and ageing reports stay right.
- Don't journal to "make it balance". A plug figure hides an error rather than fixing it.
Journals are for things the bank never sees: depreciation, accruals, stock adjustments, write-offs and corrections.
How HelloBooks helps
HelloBooks keeps the everyday side out of journals entirely: bank-feed and CSV transactions land in a review list where you confirm or change the category, invoices and bills track what customers and suppliers owe, and aged receivables and payables show it at a glance. Your P&L, Balance Sheet and Cash Flow reports reflect everything, including your accountant's adjustments, and you can invite your bookkeeper, BAS agent or accountant into the same books so their entries are made where you can see them. On Business (A$120/month), the audit log records who changed what. If you hold stock, see our Australian inventory page, or browse all bookkeeping features.
FAQs
Do I need to write journal entries myself?
Most small business owners rarely do. Your bookkeeper or accountant usually handles adjustments. What helps is being able to read them and ask "why?" when one changes your profit.
Why do debits have to equal credits?
Because every transaction affects at least two things. If you gain an asset, either you gave up another asset, took on a liability, earned income or put in capital. The equal totals are the proof both sides were recorded.
What's an adjusting journal?
An entry made at the end of a period to get the timing right: depreciation, accruals, prepayments, stock adjustments. They don't involve the bank.
Can a journal entry be deleted?
It's better to reverse it with an opposite entry and a narration, especially in a closed period. That way anyone reviewing the books can see what happened.
My accountant's year-end journals changed my profit. Is that normal?
Very. Year-end adjustments often include depreciation, accruals and corrections. Ask for a short explanation of each one, and you'll learn a lot about your own business.
Next time a list of journals lands in your inbox, read them as sentences, and ask about any you can't explain.
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