Key takeaways
What this article covers, in order:
- Why an owner should care
- Debits and credits in one table
- The nine entries
- The correcting entry
- How to sanity-check any entry
- How HelloBooks helps
A journal entry records one business event as equal debits and credits across two or more accounts. You don't need to write them all day to run a small business, but you should be able to read the nine common ones below, because they're behind every number your bookkeeper or CPA shows you. Each example uses real figures, and every one balances.
Why an owner should care
Omar owns a small print shop in Chicago. His bookkeeper sent him a note on Nov 6, 2026: "Posted the Oct 2026 adjusting entries: prepaid insurance, accrued wages, depreciation. Let me know if you have questions."
Omar had questions. Mostly: what does any of that mean, and should he believe his P&L now? He didn't need to become an accountant. He needed to know enough to read the entries, spot one that looks wrong, and ask a decent question.
That's the goal here.
Debits and credits in one table
Every entry has at least one debit and one credit, and total debits always equal total credits. Whether a debit increases or decreases an account depends on the account type:
| Account type | A debit... | A credit... | Normal balance |
|---|---|---|---|
| Asset (cash, receivables, equipment) | Increases | Decreases | Debit |
| Expense | Increases | Decreases | Debit |
| Owner draws | Increases | Decreases | Debit |
| Liability (loans, payables, cards) | Decreases | Increases | Credit |
| Equity (contributions, retained earnings) | Decreases | Increases | Credit |
| Revenue | Decreases | Increases | Credit |
A quick way to remember it: assets and expenses go up with debits. Liabilities, equity and revenue go up with credits.
One thing that confuses people: your bank calls a deposit a "credit" to your account. That's from the bank's point of view, because your money is a liability to them. In your books, a deposit is a debit to Cash.
The nine entries
All dates are in Oct 2026 unless stated.
1. Owner puts money into the business
Omar transfers $5,000 from his personal savings into the business checking account on Oct 1, 2026.
| Account | Debit | Credit |
|---|---|---|
| Business Checking | $5,000 | |
| Owner Contributions | $5,000 |
This isn't revenue. It's equity. Recording it as income is one of the most common errors we see on small business P&Ls.
2. Owner takes money out
On Oct 15, 2026 he transfers $2,000 to his personal account.
| Account | Debit | Credit |
|---|---|---|
| Owner Draws | $2,000 | |
| Business Checking | $2,000 |
Not an expense, either. Draws reduce equity. (In a corporation, owners are paid differently, so the accounts would differ; your CPA can set those up.)
3. Invoicing a customer, then getting paid
Omar invoices a real estate office $1,800 for signage on Oct 8, 2026. They pay on Oct 29, 2026.
Invoice:
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $1,800 | |
| Printing Revenue | $1,800 |
Payment:
| Account | Debit | Credit |
|---|---|---|
| Business Checking | $1,800 | |
| Accounts Receivable | $1,800 |
Revenue was recorded once, at the invoice. The payment just turns a receivable into cash.
4. Taking out a loan
The shop borrows $20,000 for a new wide-format printer on Oct 2, 2026.
| Account | Debit | Credit |
|---|---|---|
| Business Checking | $20,000 | |
| Equipment Loan | $20,000 |
Borrowed money is a liability, never income.
5. Making a loan payment
On Oct 31, 2026 he pays $640 toward the loan. The lender's statement says $560 is principal and $80 is interest.
| Account | Debit | Credit |
|---|---|---|
| Equipment Loan | $560 | |
| Interest Expense | $80 | |
| Business Checking | $640 |
Only the interest hits the P&L. If the whole $640 were coded as an expense, the P&L would understate profit and the loan balance in the books would never go down.
6. Buying equipment
He spends $18,500 on the printer on Oct 3, 2026.
| Account | Debit | Credit |
|---|---|---|
| Equipment | $18,500 | |
| Business Checking | $18,500 |
The printer is an asset because it'll be used for years. How quickly it's written off for tax purposes is your CPA's call; in the books you'll usually spread its cost with depreciation.
7. Depreciation
Say the printer is depreciated straight-line over five years with no salvage value: $18,500 ÷ 60 months is about $308.33 a month.
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | $308.33 | |
| Accumulated Depreciation | $308.33 |
No cash moves. Accumulated Depreciation is a contra-asset that sits under Equipment on the Balance Sheet and reduces its net value over time.
8. Prepaid insurance
On Oct 1, 2026 Omar pays a $2,400 annual liability insurance premium covering Oct 2026 through Sep 2027.
When he pays:
| Account | Debit | Credit |
|---|---|---|
| Prepaid Insurance | $2,400 | |
| Business Checking | $2,400 |
At the end of each month, one-twelfth becomes expense:
| Account | Debit | Credit |
|---|---|---|
| Insurance Expense | $200 | |
| Prepaid Insurance | $200 |
This way each month carries its fair share instead of Oct 2026 taking a $2,400 hit and the next eleven months looking artificially cheap. If you keep your books on a cash basis, you'd usually just expense the payment; this entry matters most for accrual books.
9. Accrued wages
Omar's part-time employee worked the last four days of Oct 2026, but payday isn't until Nov 7, 2026. Those wages are $480.
On Oct 31, 2026:
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | $480 | |
| Accrued Wages Payable | $480 |
On Nov 1, 2026 the bookkeeper reverses it:
| Account | Debit | Credit |
|---|---|---|
| Accrued Wages Payable | $480 | |
| Wages Expense | $480 |
When the full paycheck is recorded on Nov 7, 2026, the reversal cancels out the part that already landed in Oct 2026. Net effect: Oct 2026 shows the wages it actually incurred, and Nov 2026 doesn't double count them. Payroll tax liabilities would be handled the same way in principle; your payroll provider and CPA will tell you what to accrue.
The correcting entry
One more worth knowing. Mistakes happen, and in a closed month you usually fix them with a new entry rather than editing the old one.
Suppose $350 of printer ink was coded to Office Supplies instead of Printing Materials (a cost of goods sold account):
| Account | Debit | Credit |
|---|---|---|
| Printing Materials | $350 | |
| Office Supplies | $350 |
The memo should say what was wrong and when. A future you, or your CPA, will be grateful.
How to sanity-check any entry
When your bookkeeper sends you entries, ask these four questions:
- Do debits equal credits?
- Does each account move in the right direction? (Use the table above.)
- Is anything hitting revenue or expense that should be on the Balance Sheet, like a loan or an owner contribution?
- Is there a memo explaining why?
If an entry fails one of those, it's worth a short email. It doesn't mean anyone's done something wrong, but it's exactly the kind of question good bookkeepers like getting.
How HelloBooks helps
Most of the entries above happen behind the scenes when you send invoices, enter bills, and categorize bank transactions in HelloBooks. You can connect most US banks and credit cards or import statement CSVs, and the Free plan ($0, no credit card, no expiry) includes invoices, bills, AP/AR aging, and the P&L, Balance Sheet and Cash Flow reports where these entries end up. Your bookkeeper or CPA can be invited into the same books to post and review adjustments. On Business ($79.99/month), the audit log records who changed what. Learn more about AI bookkeeping and bookkeeping features.
FAQs
What's the simplest way to remember debits and credits?
Assets, expenses and draws increase with debits. Liabilities, equity and revenue increase with credits. Every entry's debits must equal its credits.
Is an owner contribution income?
No. It's equity. Recording it as income overstates profit.
Why isn't my whole loan payment an expense?
The principal part reduces the loan liability. Only the interest is an expense.
What's an adjusting entry?
An entry made at the end of a period to match income and expenses to the right month, such as prepaid insurance, accruals or depreciation.
Should I edit an old entry or make a new one?
In an open month, editing is fine. In a closed month, a dated correcting entry with a memo keeps the history clear.
You don't have to love debits and credits. You just need to be able to read them.
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