Key takeaways
What this article covers, in order:
- Debits and credits in two minutes
- 1. Putting your own money into the business
- 2. Taking out a business loan
- 3. Repaying the loan (with interest)
- 4. Depreciation on equipment
- 5. An accrual for a cost you haven't been billed for
A journal entry is a record of a transaction that shows which accounts went up and which went down, with debits always equal to credits. You don't need to post them yourself to benefit from understanding them. Knowing the eight common journal entries below means you can read what your bookkeeper or accountant has done, spot when something looks wrong, and ask better questions.
Debits and credits in two minutes
Every entry has at least two sides, and the totals must match. That's double entry, and it's been the backbone of bookkeeping for centuries because it catches mistakes.
The rule of thumb that trips everyone up at first:
| Account type | A debit... | A credit... |
|---|---|---|
| Assets (bank, debtors, equipment) | increases it | decreases it |
| Expenses (rent, fuel, wages) | increases it | decreases it |
| Liabilities (loans, creditors) | decreases it | increases it |
| Income (sales) | decreases it | increases it |
| Equity (capital, retained profit) | decreases it | increases it |
Yes, "debit the bank" means more money in the bank. It feels backwards because your bank statement is written from the bank's point of view, where your money is something they owe you. From your books' point of view, cash is an asset, and assets go up with a debit.
One practical note before the examples. When a transaction comes through your bank feed and you categorise it, your software creates the journal behind the scenes. You don't post a separate journal as well, or you'll count it twice. The examples below show what's happening underneath. The figures are kept simple and leave tax out.
1. Putting your own money into the business
Leanne starts a dog-grooming business in Sheffield and pays £5,000 of her savings into the business account.
| Account | Debit | Credit |
|---|---|---|
| Business current account | £5,000.00 | |
| Capital introduced | £5,000.00 | |
| Total | £5,000.00 | £5,000.00 |
This isn't income. She hasn't earned anything; she's moved her own money in. If it were posted to sales, her first month would look wildly profitable. That's one of the most common mistakes we see. (For a limited company, money lent by a director usually goes to the director's loan account instead.)
2. Taking out a business loan
She borrows £10,000 from the bank to fit out a van.
| Account | Debit | Credit |
|---|---|---|
| Business current account | £10,000.00 | |
| Bank loan | £10,000.00 | |
| Total | £10,000.00 | £10,000.00 |
Again, not income. The money is in the bank, but she owes it back.
3. Repaying the loan (with interest)
Her monthly repayment is £420. The bank's loan statement shows £65 of that is interest and £355 reduces what she owes.
| Account | Debit | Credit |
|---|---|---|
| Bank loan | £355.00 | |
| Loan interest (expense) | £65.00 | |
| Business current account | £420.00 | |
| Total | £420.00 | £420.00 |
Only the £65 is a cost to the business. The £355 just reduces the debt. Posting the full £420 to an expense account overstates costs every month, and the loan balance on the balance sheet never goes down.
4. Depreciation on equipment
The fitted-out van cost £18,000. Leanne's accountant suggests spreading the cost over five years in equal amounts: £18,000 ÷ 60 months = £300 a month.
| Account | Debit | Credit |
|---|---|---|
| Depreciation (expense) | £300.00 | |
| Motor vehicles: accumulated depreciation | £300.00 | |
| Total | £300.00 | £300.00 |
No money moves. This is a non-cash entry that spreads the van's cost across the years it's used. The depreciation method and rate are your accountant's call, and how equipment is treated for tax follows separate rules.
5. An accrual for a cost you haven't been billed for
Leanne's accountant will charge around £1,200 for the year-end accounts, but won't invoice until after the year ends. To get that cost into the right year:
| Account | Debit | Credit |
|---|---|---|
| Accountancy fees (expense) | £1,200.00 | |
| Accruals (liability) | £1,200.00 | |
| Total | £1,200.00 | £1,200.00 |
When the real invoice arrives next year, the accrual is cleared against it rather than creating a second expense.
6. A prepayment for something paid in advance
On 1 Oct 2026 she pays £1,440 for twelve months of business insurance. It covers Oct 2026 to Sep 2027, so it shouldn't all hit the Oct 2026 P&L.
First, the payment goes to prepayments, an asset:
| Account | Debit | Credit |
|---|---|---|
| Prepayments | £1,440.00 | |
| Business current account | £1,440.00 | |
| Total | £1,440.00 | £1,440.00 |
Then, each month, £1,440 ÷ 12 = £120 is released into the P&L:
| Account | Debit | Credit |
|---|---|---|
| Insurance (expense) | £120.00 | |
| Prepayments | £120.00 | |
| Total | £120.00 | £120.00 |
After twelve months the prepayment is back to zero and insurance shows £120 every month. Many small businesses skip this and just expense the whole premium when paid. For small amounts that's often fine; for big annual costs, spreading them gives a truer monthly picture.
7. Writing off a bad debt
A customer owes £860 for a contract grooming job and has stopped answering calls. After chasing for months, Leanne accepts it's not coming.
| Account | Debit | Credit |
|---|---|---|
| Bad debts (expense) | £860.00 | |
| Trade debtors | £860.00 | |
| Total | £860.00 | £860.00 |
Don't just delete the invoice. The original sale did happen, and deleting it rewrites history. A write-off keeps the record honest. Check with your accountant before writing off anything significant.
8. Correcting a miscategorisation
A £230 software subscription was posted to travel by mistake.
| Account | Debit | Credit |
|---|---|---|
| Software and subscriptions | £230.00 | |
| Travel | £230.00 | |
| Total | £230.00 | £230.00 |
If the bank line is still in an open period, it's usually cleaner just to recategorise the original transaction. A correcting journal is for when the period is locked or the error was in a journal itself.
How to sense-check a journal
When your bookkeeper or accountant sends you a list of journals, here's what to look for:
- Do debits equal credits? Always, on every entry. If not, it's not a valid journal.
- Is there a narrative? Each journal should say why it exists. "Year-end adj" tells you nothing; "Accrue accountancy fee for year to 30 Sep 2026" tells you everything.
- Is anything hitting the bank? Journals that touch the bank account outside a reconciliation deserve a second look, because the bank feed usually covers real money movements.
- Is anything big and round? Round numbers aren't wrong, but a £5,000 journal to "General expenses" is worth a question.
How HelloBooks helps
Most of these entries happen automatically when you categorise bank transactions or raise invoices and bills. Connect your bank through Open Banking, or import a CSV statement, and each line lands in a review list where you confirm or change the category. Customer payments match to invoices; supplier payments match to bills; debtors and creditors stay accurate.
You can invite your bookkeeper or accountant into the same books to post year-end adjustments, and on Business the audit log records who changed what. The bookkeeping features page lists everything in each plan, our automated bookkeeping page explains the categorising side, and you can get started on the UK site.
FAQs
Do I need to post journal entries myself?
Usually not. Categorising bank transactions and raising invoices and bills creates the entries for you. Year-end adjustments are often done by your accountant.
Why does "debit" mean money in for the bank?
In your books, cash is an asset, and assets increase with a debit. Your bank statement is written from the bank's side, where your balance is money they owe you, which is why it looks reversed.
What's the difference between an accrual and a prepayment?
An accrual is a cost you've incurred but not yet been billed for. A prepayment is a cost you've paid but not yet used. They're mirror images.
Is depreciation a real cost if no money leaves?
Yes, in the sense that the equipment is wearing out and will need replacing. It's a non-cash cost that spreads the purchase price over the years you use the asset.
What happens if a journal doesn't balance?
It isn't a valid double-entry record. Good software won't let you save it. If you see one on paper, it's a mistake.
Next time your accountant sends over year-end journals, read them with this list beside you. They'll make a lot more sense.
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