Journal entry examples for real life, not textbooks.

Reading about debits and credits only goes so far. The fastest way to really understand bookkeeping is to work through journal entry examples from the kinds of transactions you'll actually see. Here are nine, each with real numbers and a balanced table, set in a Canadian business that's registered for GST at 5%.

If you need a refresher on which side is which, keep our debits and credits cheat sheet open in another tab. And if you're not sure which account an entry belongs in, the chart of accounts guide will help.

1The anatomy of a journal entry

Every journal entry has the same parts:

• A date: when the transaction happened, which decides which period it lands in.
• Two or more lines: each with an account and an amount in either the debit or the credit column.
• Equal totals: debits must equal credits.
• A memo: a short explanation of what and why. "Dec amortization, laptop" beats "adj."

A four-step method for any entry

When you meet a transaction you've never recorded before, work through it in this order:

• What came in or went out of the bank (or card)? Place that side first.
• What did the business get or give up in exchange? An expense, an asset, a reduced debt, revenue?
• Is there GST? If you're registered, split it out to GST/HST Payable.
• Do the totals match? If not, a piece is missing.

For the examples, say you run a small marketing studio in Edmonton.

2Journal entry examples for sales and purchases

1. Invoicing a client

You invoice a client $4,000 plus $200 GST for a website project, payable in 30 days.

When the client pays, you debit the bank $4,200 and credit accounts receivable $4,200. No new revenue.

2. Entering a supplier bill

A freelance copywriter (GST-registered) bills you $1,500 plus $75 GST. You'll pay next month.

You can generally claim the $75 input tax credit in the period you're billed, as long as you have an invoice with the details CRA requires, such as the supplier's GST number.

3Loans, assets, payroll and GST

3. A loan payment, split into principal and interest

Your monthly equipment loan payment is $1,000. The lender's statement shows $850 is principal and $150 is interest.

Only the interest is an expense. The principal just reduces what you owe. Coding the whole $1,000 to expenses is one of the most common mistakes we see.

4. Monthly amortization

You bought $3,600 of computer equipment and want to spread its cost over three years in your books: $100 a month.

5. Recording a payroll run

You pay an employee $3,000 gross for the month. For illustration, say the deductions are $160 CPP, $50 EI and $400 income tax, so their net pay is $2,390. As the employer, you also pay a matching $160 CPP and $70 EI (employer EI is 1.4 times the employee's). Real amounts come from CRA's payroll tables or your payroll software.

The $840 is both halves of CPP ($320), both shares of EI ($120) and the income tax withheld ($400). A regular remitter generally sends it to CRA by the 15th of the following month, which is recorded as a debit to payroll liabilities and a credit to the bank.

6. Filing and paying your GST return

At the end of your GST period, GST/HST Payable shows $2,000 of GST collected and $600 of input tax credits, a net $1,400 owing.

The GST payment is never an expense. It's paying off a liability you built up by collecting tax for CRA. Check your filing frequency to know when it's due; most small businesses file annually.

7. Paying for a year of software up front

You pay $1,200 plus $60 GST in January for a full year of project management software. Under accrual accounting the cost belongs to the twelve months it covers, so it starts as a prepaid asset:

Each month, a $100 entry debits software expense and credits prepaid expenses. The GST is claimed in full when you pay, because that's when you incurred it. Our guide to cash vs accrual accounting explains why the cost is spread.

4Owner transactions and corrections

8. An owner draw (sole proprietor)

You move $2,500 from the business account to your personal account.

In a corporation, the same transfer would usually be debited to the shareholder loan account instead, until it's turned into salary or dividends. Amounts you owe the company generally need to be repaid within one year after its year-end, or they can be added to your personal income, so talk to your accountant before letting that balance grow.

9. Correcting a personal expense

You notice a $90 family dinner was paid with the business card and coded to meals and entertainment. As a sole proprietor, you move it out of expenses:

If the original transaction claimed GST, that needs reversing too. In an open period, it's usually cleaner to edit the original transaction. Use a correcting entry when the period has been closed or reviewed.

5Journal entries in QuickBooks Online

• Most entries are automatic. Invoices, bills, payments, bank feed categorizations and payroll (if you run it inside QuickBooks) all create entries for you.
• Manual entries: choose + New, then Journal entry. Fill in the date, the accounts, debits and credits, and a memo on each line.
• Accounts receivable and payable lines need a name. QuickBooks asks for a customer or supplier on those lines, so the balance shows up against the right person.
• Recurring entries: you can save a journal entry as recurring, which is ideal for monthly amortization or prepaid expenses.
• Reversing entries: QuickBooks can reverse a saved journal entry, creating a mirror-image entry. That's handy for a year-end accrual that should undo itself on the first day of the new year, once the real bill arrives.
• Attach the support: add the loan statement, payroll summary or calculation as an attachment so anyone reviewing the entry can see where the numbers came from.
• Watch the GST: GST lines in manual entries can affect your GST return. If you're not sure how a manual GST line will be treated, check the GST report before filing.

6Common journal entry mistakes

• Expensing the whole loan payment. Only interest is an expense.
• Recording a customer payment as revenue when an invoice already exists.
• Treating the GST remittance as an expense, which understates profit and leaves a balance stuck in GST/HST Payable.
• Wrong dates. A December accrual dated January lands in the wrong year.
• No memo. A journal entry without an explanation is a puzzle for whoever reviews it.
• Using journal entries for everything. If an invoice or bill would do the job, use it. It keeps customer and supplier balances accurate.

Next on the learning path: once entries are recorded, they're posted to the general ledger, and that's where you'll see each account's running balance.

Plum handles journal entries, payroll entries and year-end adjustments for owners across Edmonton, Sherwood Park, St. Albert and Fort Saskatchewan. If you want someone to check your entries or take them off your plate, book a short call.

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This article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.