Fundamentals of Accounting · Accounting Process

Journal and Journal Entries: Step-by-Step Guide for CSEET

Updated 11 October 2026 · Fact-checked

A journal is the book of original entry where you record each business transaction in date order. To solve a question, identify the two or more accounts affected, classify each, apply the debit and credit rules, write the entry with amounts, and add a short narration. Check that total debits equal total credits.

Understand Journal and Journal Entries

Every business transaction must be recorded before it can be summarised. The journal is the first book where this happens. It is called the book of original entry because a transaction is written here first, in date order, before it goes to the ledger.

Each transaction has two sides, as per the double entry system. One account receives a benefit and is debited. Another account gives a benefit and is credited. A journal entry is the record of this in a fixed format: date, particulars (the debit account, then the credit account), ledger folio, debit amount and credit amount. Below the entry you write a narration, a brief line explaining why the entry was made.

Some transactions affect more than two accounts. A compound journal entry combines several debits, several credits, or both, into one entry. For example, goods sold for part cash and part credit touch the Cash, Debtor and Sales accounts. The total of all debits must equal the total of all credits.

An opening entry records the balances of assets and liabilities brought forward from the previous year at the start of a new year. All assets are debited. All liabilities are credited. The difference is the capital, which is credited. Only the journal can record this in the new books, since there is no earlier transaction to refer to.

A journal entry does not change the accounts. It only gives the ledger a clean, checked instruction. A correct journal entry makes ledger posting and the trial balance much easier.

Key rules to remember

Personal account rule: Debit the receiver; Credit the giver; Applies to accounts of persons, firms, companies and banks, such as Ramesh or HDFC Bank.
Real account rule: Debit what comes in; Credit what goes out; Applies to assets such as cash, goods, machinery and furniture.
Nominal account rule: Debit all expenses and losses; Credit all incomes and gains; Applies to rent, salary, commission received, interest and similar items.
Journal entry balance check: Total of debit amounts = Total of credit amounts; Holds for every entry, simple or compound.
Opening entry: Capital = Total assets − Total outside liabilities; Debit all assets, credit all liabilities, and credit Capital with the balancing figure.
Standard journal format: Date | Particulars | L.F. | Dr. (₹) | Cr. (₹), then (Being ... narration); Write Dr. against the debit account, and 'To' before the credit account, which is indented.

How to solve Journal and Journal Entries questions

This method works for any journal entry question, whether it has one transaction or a list of ten.

1Read the transaction slowly and decide what actually happened. Note the date, amount, parties and mode of payment (cash, cheque or credit).
2List every account affected. Do not assume there are only two.
3Classify each account as personal, real or nominal.
4Apply the matching rule to decide whether each account is debited or credited.
5Write the entry: debit accounts first with Dr., then credit accounts indented with 'To'. Put amounts in the correct columns.
6Check that total debits equal total credits. For a compound entry, this check catches missing items.
7Write a one-line narration beginning with 'Being', stating what happened.
8If the question gives trade discount, show only the net amount. If it gives cash discount, record it separately as discount allowed or discount received.

Quickest way: Two-question shortcut for each transaction

When to use it: Use this when you have many transactions and little time, as in the compulsory Question 1.

Ask 'What comes in?' and write the answer as the debit side. It may be an asset, an expense or a person who owes you.
Ask 'What goes out or what is the source?' and write it as the credit side. It may be cash, a supplier, income or capital.
If one side splits into parts, such as cash and credit, list each part separately and make sure the parts add up to the total.
Write the narration in a few words and move on.

Common mistakes in Journal and Journal Entries

Debiting the wrong side for owner-related items, such as drawings or capital introduced
Students treat the owner as a giver and not as a separate account.
Fix: Drawings reduce capital and are debited to Drawings A/c. Capital introduced is credited to Capital A/c.
Recording purchase of an asset as Purchases A/c
The word 'purchase' triggers the wrong account.
Fix: Purchases A/c is only for goods meant for resale. Use Machinery A/c, Furniture A/c and so on for assets.
Forgetting the narration or writing a long one
Students think the narration is optional or decorative.
Fix: Always add a short 'Being ...' line. Examiners expect it, and it shows you understood the transaction.
Showing trade discount in the journal
Students mix up trade discount and cash discount.
Fix: Trade discount is deducted before recording, so use the net amount. Only cash discount is recorded as an account.
Opening entry with unbalanced totals or missing Capital
Students forget that capital is the balancing figure.
Fix: Total the assets, subtract the liabilities, and credit Capital with the result. Then confirm both sides match.
Compound entry where debit and credit totals differ
Students miss one part of a split payment or an expense bundled in the transaction.
Fix: Add each side separately before finalising the entry. If they differ, recheck the question for missed amounts.

Worked examples

Example 1

Pass journal entries for the following transactions of Mehta Traders in April:
1 April: Started business with cash ₹2,00,000 and furniture ₹30,000.
5 April: Purchased goods from Sharma & Co. on credit ₹40,000.
10 April: Sold goods to Anil for ₹25,000, receiving ₹10,000 in cash and the rest on credit.
15 April: Paid rent ₹5,000 by cash.

Show the solution

1 April: Cash and Furniture come in, so both are debited. Capital is the source, so it is credited. Total debit = ₹2,00,000 + ₹30,000 = ₹2,30,000, which equals Capital.
5 April: Goods come in, so debit Purchases. Sharma & Co. is a giver, so credit it.
10 April: Cash ₹10,000 comes in, and Anil becomes a debtor for ₹25,000 − ₹10,000 = ₹15,000. Goods go out, so credit Sales ₹25,000. Debits = ₹10,000 + ₹15,000 = ₹25,000, which equals credits.
15 April: Rent is an expense, so debit it. Cash goes out, so credit it.

Answer: 1 April: Cash A/c Dr. ₹2,00,000; Furniture A/c Dr. ₹30,000; To Capital A/c ₹2,30,000 (Being business started with cash and furniture). 5 April: Purchases A/c Dr. ₹40,000; To Sharma & Co. ₹40,000 (Being goods purchased on credit). 10 April: Cash A/c Dr. ₹10,000; Anil Dr. ₹15,000; To Sales A/c ₹25,000 (Being goods sold partly for cash and partly on credit). 15 April: Rent A/c Dr. ₹5,000; To Cash A/c ₹5,000 (Being rent paid).

Example 2

On 1 April, the balances of Gupta Stores were: Cash ₹15,000; Bank ₹45,000; Stock ₹60,000; Debtors ₹30,000; Machinery ₹1,00,000; Creditors ₹35,000; Bank Loan ₹50,000. Pass the opening entry.

Show the solution

Total assets = ₹15,000 + ₹45,000 + ₹60,000 + ₹30,000 + ₹1,00,000 = ₹2,50,000.
Total outside liabilities = ₹35,000 + ₹50,000 = ₹85,000.
Capital = ₹2,50,000 − ₹85,000 = ₹1,65,000.
Debit all assets. Credit the liabilities and Capital. Credits = ₹35,000 + ₹50,000 + ₹1,65,000 = ₹2,50,000, which equals the debits.

Answer: Opening Journal Entry, 1 April: Cash A/c Dr. ₹15,000 Bank A/c Dr. ₹45,000 Stock A/c Dr. ₹60,000 Debtors A/c Dr. ₹30,000 Machinery A/c Dr. ₹1,00,000 To Creditors A/c ₹35,000 To Bank Loan A/c ₹50,000 To Capital A/c ₹1,65,000 (Being balances brought forward from the previous year). Total ₹2,50,000 on each side.

Exam tips

Question 1 in Paper 2 is compulsory and often has journal entries or a related recording task. Practise it until the format is automatic.
Always write date, accounts with Dr. and To, amounts and narration. Method marks are given for each correct entry.
In a long question, tick each transaction as you finish it so you do not skip one.
Watch for hidden items: discounts, drawings, goods taken for personal use, bad debts and part payments.
Keep your amounts aligned in separate debit and credit columns, and check totals for compound and opening entries.

Practice questions from Accounting Process

Journal and Journal Entries in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Journal and Journal Entries: frequently asked questions

What is the difference between a journal and a ledger?

The journal records transactions in date order as they happen. The ledger groups them account by account. The journal comes first, and entries are then posted to the ledger.

How do I pass a compound journal entry?

List every account affected and decide whether each is debited or credited. Write all debits first, then all credits. Check that the total of debits equals the total of credits, then add one narration.

Is narration compulsory in a journal entry?

It is a standard part of the format, and you should always write it. Keep it short, starting with 'Being', and say what the transaction was.

How do I find capital in an opening entry?

Add up all the assets and subtract the outside liabilities. The result is Capital, which you credit in the entry. Debits and credits will then match.