A journal entry is the record of one transaction, written as two sides that must match. Every rupee that goes into one account comes out of another. Get the two sides right and every report built on top of them is right too.
Owners rarely pass these by hand now, because the software does it. The trouble starts when a figure in the profit and loss account looks wrong and nobody in the room can explain how it got there.
Across the 8,000+ businesses billing on Petpooja Invoice, a short list of entries covers most of a year’s books. Below are 25 of them, worked in full and grouped by when they come up. Each uses example figures and 18% GST, and each one balances.
Key Takeaways
- Every entry has equal debits and credits, or it is wrong.
- Input GST is an asset, output GST a liability. They meet at set-off.
- Debit and credit notes reverse the tax as well as the value.
- TDS never leaves your bank. It is a liability until you deposit it.
How Debits and Credits Work
One rule covers most entries. Debit what comes in or what you spend, and credit what goes out or what you owe.
Put slightly more usefully, there are five kinds of account, and each moves in a fixed direction:
| Type of Account | Increases With | Examples |
|---|---|---|
| Assets | Debit | Cash, bank, stock, machinery, debtors |
| Expenses | Debit | Rent, salary, electricity, depreciation |
| Liabilities | Credit | Creditors, loans, TDS payable, output GST |
| Income | Credit | Sales, commission, interest earned |
| Capital | Credit | Owner’s investment, reserves |
So when a Surat textile wholesaler buys stock on credit, stock goes up (debit) and the amount owed to the supplier goes up (credit). Both sides move together. That pairing is what every ledger account is built from.
To pass any entry, work through three steps:
- Name the accounts the transaction touches.
- Set each one’s direction using the table above.
- Check both sides add up to the same figure.
Everything below is that method applied 25 times.
Journal Entries for Starting a Business
These three come up once, in the first weeks, and set the opening shape of your books.
| # | Transaction (an example) | Debit | Credit |
|---|---|---|---|
| 1 | Owner puts ₹5,00,000 into the business bank account | Bank ₹5,00,000 | Capital ₹5,00,000 |
| 2 | Business takes a term loan of ₹10,00,000 | Bank ₹10,00,000 | Bank Loan ₹10,00,000 |
| 3 | Buys machinery for ₹2,00,000 plus 18% GST, paid by bank | Machinery ₹2,00,000 Input CGST ₹18,000 Input SGST ₹18,000 | Bank ₹2,36,000 |
Read each row across. The debit column and the credit column must come to the same figure, however many accounts sit on either side. Entry 3 spreads its debit over three accounts, and both sides still meet at ₹2,36,000.
Note what entry 3 does not do. The GST is not added to the cost of the machine, because you can claim it back. It goes to its own input account and waits.
Journal Entries for Purchases and Suppliers
Purchases are where most errors creep in, usually in the tax lines. A Rajkot engineering unit buying steel and a Nashik distributor buying cartons pass the same five entries.
| # | Transaction (an example) | Debit | Credit |
|---|---|---|---|
| 4 | Cash purchase of goods worth ₹50,000 plus 18% GST | Purchases ₹50,000 Input CGST ₹4,500 Input SGST ₹4,500 | Cash ₹59,000 |
| 5 | Credit purchase of ₹1,00,000 plus 18% GST | Purchases ₹1,00,000 Input CGST ₹9,000 Input SGST ₹9,000 | Sundry Creditor ₹1,18,000 |
| 6 | Pays the supplier ₹1,18,000 by bank transfer | Sundry Creditor ₹1,18,000 | Bank ₹1,18,000 |
| 7 | Returns goods worth ₹10,000 and raises a debit note | Sundry Creditor ₹11,800 | Purchase Return ₹10,000 Input CGST ₹900 Input SGST ₹900 |
| 8 | Pays ₹4,000 cash for inward freight | Carriage Inward ₹4,000 | Cash ₹4,000 |
Entry 7 is the one people get wrong. A return reverses the tax as well as the goods, so the input credit you already claimed has to come back out. Our credit and debit note template keeps a running record of these.
Journal Entries for Sales and Customers
The mirror image of purchases. Here the tax you collect is a liability, not an asset, because it belongs to the government.
| # | Transaction (an example) | Debit | Credit |
|---|---|---|---|
| 9 | Cash sale of ₹80,000 plus 18% GST | Cash ₹94,400 | Sales ₹80,000 Output CGST ₹7,200 Output SGST ₹7,200 |
| 10 | Credit sale of ₹1,50,000 plus 18% GST | Sundry Debtor ₹1,77,000 | Sales ₹1,50,000 Output CGST ₹13,500 Output SGST ₹13,500 |
| 11 | Customer pays ₹1,77,000 into the bank | Bank ₹1,77,000 | Sundry Debtor ₹1,77,000 |
| 12 | Customer returns ₹20,000 of goods, credit note raised | Sales Return ₹20,000 Output CGST ₹1,800 Output SGST ₹1,800 | Sundry Debtor ₹23,600 |
| 13 | Settles a ₹50,000 bill at ₹48,000 for early payment | Bank ₹48,000 Discount Allowed ₹2,000 | Sundry Debtor ₹50,000 |
The output tax balance from entries 9 and 10 is what you will eventually pay, less whatever input credit you hold. Entry 11 changes nothing in your profit, it only moves money from one asset to another.
Journal Entries for Business Expenses
Two of these carry a tax deduction. The Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026, folding the old 194-series numbers into one consolidated TDS section. Rates and thresholds carried over largely unchanged, and the entry itself did not change at all.
| # | Transaction (an example) | Debit | Credit |
|---|---|---|---|
| 14 | Pays ₹40,000 shop rent after deducting 10% TDS | Rent ₹40,000 | TDS Payable ₹4,000 Bank ₹36,000 |
| 15 | Salary of ₹2,00,000 with ₹24,000 held back for PF | Salary ₹2,00,000 | PF Payable ₹24,000 Salary Payable ₹1,76,000 |
| 16 | Electricity bill of ₹18,500 paid | Electricity ₹18,500 | Bank ₹18,500 |
| 17 | Pays a consultant ₹50,000 after 10% TDS | Professional Fees ₹50,000 | TDS Payable ₹5,000 Bank ₹45,000 |
| 18 | Bank charges of ₹1,000 plus 18% GST | Bank Charges ₹1,000 Input CGST ₹90 Input SGST ₹90 | Bank ₹1,180 |
Entries 14 and 17 show why TDS confuses owners. The full expense is booked, but only part of it leaves your bank. The rest is money you hold on the government’s behalf until you deposit it.
The employee share of provident fund in entry 15 works the same way, and the deposit rules sit with EPFO.
Journal Entries for Month-End Adjustments
These seven are what separate a rough cash record from books you can file from. A Pune diagnostic lab and an Indore electronics retailer both pass them on the same dates.
| # | Transaction (an example) | Debit | Credit |
|---|---|---|---|
| 19 | Depreciation of ₹20,000 charged on machinery | Depreciation ₹20,000 | Machinery ₹20,000 |
| 20 | Writes off ₹15,000 owed by a customer who will not pay | Bad Debts ₹15,000 | Sundry Debtor ₹15,000 |
| 21 | Creates a ₹10,000 provision against doubtful dues | Profit & Loss ₹10,000 | Provision for Doubtful Debts ₹10,000 |
| 22 | March rent of ₹40,000 due but not yet paid | Rent ₹40,000 | Outstanding Rent ₹40,000 |
| 23 | Pays ₹12,000 insurance covering the next year | Prepaid Insurance ₹12,000 | Insurance ₹12,000 |
| 24 | Sets off ₹27,000 output GST against ₹18,000 input GST | Output CGST ₹13,500 Output SGST ₹13,500 | Input CGST ₹9,000 Input SGST ₹9,000 Bank ₹9,000 |
| 25 | Closing stock valued at ₹1,20,000 | Closing Stock ₹1,20,000 | Trading ₹1,20,000 |
Entry 24 is the one worth studying. The input and output accounts that filled up all month cancel each other, and only the balance of ₹9,000 is paid.
If your input credit does not match what the portal shows, the GST ITC reconciliation template is the place to start. Returns are filed on the GST portal.
Entries 22 and 23 exist for one reason: cost belongs to the month it relates to, not the month it was paid in. Skip them and your monthly profit swings for no real reason.
Which Entries Your Billing Software Passes for You
You will pass very few of these by hand. Billing software raises most of the purchase and sales entries, 4 to 5 and 9 to 13, the moment an invoice is saved.
That is the argument for keeping billing and books in one place, rather than typing invoices in one system and re-entering them in another. Scanning tools have pushed this further, as we cover in AI invoice processing.
Petpooja Invoice creates the entry from the invoice itself, so the input tax, the party balance and the stock all move together. Small errors here quietly eat margin, as we cover in how retail shops lose profit.
Conclusion
Journal entries are less about accounting theory than about being able to check your own numbers. Learn the five account types, remember that input GST is an asset and output GST is a liability, and the 25 entries above cover almost everything a small business meets in a year.
Keep this page open next to your books for a month. After that you will recognise the entries without looking. If you want the entries created for you as you bill, Petpooja Invoice does that from the invoice onward.
Frequently Asked Questions
Your software passes them for you, but you should be able to read one. When a figure looks wrong in your profit and loss account, the quickest way to find the cause is to open the entry behind it. Owners who can read an entry catch errors before they reach a return.
It cannot be saved in a proper accounting system, which is the whole point of double entry. In a spreadsheet it saves happily and turns up later as a trial balance that will not tally. That is the strongest argument for billing software over Excel.
In the same entry. The input tax sits on its own line beside the purchase value, and both are credited to the supplier as one amount. Splitting them breaks the link between an invoice and its tax, which makes reconciliation harder. A GST calculator helps you check the split before you record it.
Fewer than most people set up. A single-location trading business usually runs on a few dozen accounts in its general ledger, not hundreds. Opening a separate ledger for every supplier and every expense type makes the trial balance longer without making it more useful.
