Double Entry Accounting Explained: A Beginner’s Guide with Journal Entry Examples

If you’ve ever wondered why accounting feels like a “two-sided coin”—you’re onto something. Double entry accounting (the backbone of modern bookkeeping) requires every transaction to be recorded in two accounts—ensuring your books stay balanced and accurate.

It’s not just for big corporations: whether you’re a freelance writer invoicing clients, a bakery buying flour, or an online store selling products, double entry accounting helps you track money without missing a beat. And to make it actionable, we’ll break down the method with simple journal entry examples—so you can see exactly how it works for everyday business tasks.

By the end, you’ll know why “every debit has a credit” (the golden rule of double entry) and how to use it to keep your finances error-free.

What Is Double Entry Accounting?

At its core, double entry accounting is a bookkeeping method where every transaction affects at least two accounts—one account is debited (increased or decreased) and another is credited (increased or decreased) by the same amount.

The goal? To ensure the accounting equation (Assets = Liabilities + Owner’s Equity) always stays balanced. This balance acts as a built-in error check: if your debits don’t equal your credits, you know you made a mistake.

Why “Double Entry”? A Simple Analogy

Think of it like balancing a scale: every weight on one side needs an equal weight on the other to keep it level. For example:

If you put $100 in your business bank account (debit Cash), you have to “balance” it by recording where the $100 came from—like your personal investment (credit Owner’s Capital).
If you buy $50 in supplies with cash (credit Cash), you balance it by recording what you got—supplies (debit Supplies).

No matter what transaction you record, the “scale” (your books) stays balanced.

The Foundation: Debits, Credits, and the Accounting Equation

To use double entry accounting, you first need to understand how debits and credits affect different types of accounts. Remember: debits and credits don’t mean “good” or “bad”—they just mean “increase” or “decrease,” depending on the account type.

Step 1: Know the 5 Account Types

All business accounts fall into 5 categories. Each category has rules for whether a debit or credit increases its balance:

Account Type	Debit (Dr) Does This...	Credit (Cr) Does This...	Examples
Assets	Increases the account	Decreases the account	Cash, Inventory, Machinery, Accounts Receivable
Liabilities	Decreases the account	Increases the account	Accounts Payable, Bank Loans, Deferred Revenue
Owner’s Equity	Decreases the account	Increases the account	Owner’s Capital, Retained Earnings
Revenues	Decreases the account	Increases the account	Sales Revenue, Service Revenue
Expenses	Increases the account	Decreases the account	Rent Expense, Salaries Expense, Supplies Expense

Step 2: The Golden Rule of Double Entry

For every transaction:
Total Debits = Total Credits

This rule ensures the accounting equation (Assets = Liabilities + Owner’s Equity) stays balanced. Let’s prove it with a simple example:

Example: You Invest $1,000 in Your Business

Accounts affected:
- Cash (Asset): Increases by $1,000 → Debit Cash $1,000
- Owner’s Capital (Equity): Increases by $1,000 → Credit Owner’s Capital $1,000
Debits = Credits: $1,000 (Dr) = $1,000 (Cr) ✅
Accounting Equation Check: Assets ($1,000) = Liabilities ($0) + Equity ($1,000) ✅

Double Entry Accounting in Action: Journal Entry Examples

Journal entries are the “language” of double entry accounting—they’re how you record transactions in your books. Below are 6 common small business scenarios with step-by-step journal entries.

1. Buying Supplies with Cash ($200)

Scenario: You run a freelance design business and buy $200 in design supplies (paper, markers) with cash.

Account types:
- Supplies (Asset): You’re increasing your assets (getting supplies) → Debit Supplies.
- Cash (Asset): You’re decreasing your assets (spending cash) → Credit Cash.
Journal Entry:
Account Name Debit Amount Credit Amount
Supplies $200
Cash $200
Balance Check: $200 (Dr) = $200 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Supplies	$200
Cash		$200

2. Selling Products on Credit ($800)

Scenario: You own a bakery and sell $800 worth of cakes to a local restaurant. The restaurant will pay you in 30 days.

Account types:
- Accounts Receivable (Asset): The restaurant owes you money → Debit Accounts Receivable.
- Sales Revenue (Revenue): You earned revenue from the sale → Credit Sales Revenue.
Journal Entry:
Account Name Debit Amount Credit Amount
Accounts Receivable $800
Sales Revenue $800
Balance Check: $800 (Dr) = $800 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Accounts Receivable	$800
Sales Revenue		$800

3. Paying a Supplier You Owe ($500)

Scenario: You owe $500 to a flour supplier (from a previous purchase). You pay them with cash.

Account types:
- Accounts Payable (Liability): You’re decreasing what you owe → Debit Accounts Payable.
- Cash (Asset): You’re decreasing your cash → Credit Cash.
Journal Entry:
Account Name Debit Amount Credit Amount
Accounts Payable $500
Cash $500
Balance Check: $500 (Dr) = $500 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Accounts Payable	$500
Cash		$500

4. Taking Out a Bank Loan ($5,000)

Scenario: You need to expand your bakery, so you take a $5,000 loan from the bank. The money is deposited into your business account.

Account types:
- Cash (Asset): Your cash increases → Debit Cash.
- Bank Loan Payable (Liability): Your debt increases → Credit Bank Loan Payable.
Journal Entry:
Account Name Debit Amount Credit Amount
Cash $5,000
Bank Loan Payable $5,000
Balance Check: $5,000 (Dr) = $5,000 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Cash	$5,000
Bank Loan Payable		$5,000

5. Paying Employee Salaries ($3,000)

Scenario: You pay your bakery staff $3,000 in salaries for the month.

Account types:
- Salaries Expense (Expense): You’re increasing your expenses → Debit Salaries Expense.
- Cash (Asset): You’re decreasing your cash → Credit Cash.
Journal Entry:
Account Name Debit Amount Credit Amount
Salaries Expense $3,000
Cash $3,000
Balance Check: $3,000 (Dr) = $3,000 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Salaries Expense	$3,000
Cash		$3,000

6. Receiving Payment from a Credit Customer ($800)

Scenario: The local restaurant pays the $800 they owed you (from Example 2).

Account types:
- Cash (Asset): Your cash increases → Debit Cash.
- Accounts Receivable (Asset): The amount the restaurant owes you decreases → Credit Accounts Receivable.
Journal Entry:
Account Name Debit Amount Credit Amount
Cash $800
Accounts Receivable $800
Balance Check: $800 (Dr) = $800 (Cr) ✅

Account Name	Debit Amount	Credit Amount
Cash	$800
Accounts Receivable		$800

How to Record a Double Entry Transaction (Step-by-Step)

Now that you’ve seen examples, here’s a simple 4-step process to record any transaction:

Step 1: Identify the Accounts Affected

Ask: “Which two (or more) accounts are changing because of this transaction?”
Example: If you buy a laptop for your business with cash, the accounts are “Laptop (Asset)” and “Cash (Asset).”

Step 2: Classify Each Account Type

For each account, determine if it’s an Asset, Liability, Equity, Revenue, or Expense.
Example: Laptop = Asset, Cash = Asset.

Step 3: Decide if Each Account Increases or Decreases

Ask: “Is this account getting bigger or smaller?”
Example: Laptop (Asset) increases (you’re getting a new one), Cash (Asset) decreases (you’re spending money).

Step 4: Apply Debit/Credit Rules and Write the Entry

Use the account type rules to debit or credit each account. Make sure total debits equal total credits.
Example: Debit Laptop (increase Asset), Credit Cash (decrease Asset) → Entry: Debit Laptop $1,200, Credit Cash $1,200.

Double Entry vs. Single Entry Accounting: What’s the Difference?

You might have heard of “single entry accounting”—a simpler method where each transaction is recorded in only one account (like a checkbook). Here’s how it compares to double entry:

Feature	Double Entry Accounting	Single Entry Accounting
Number of accounts per transaction	At least two (debit + credit)	One (only cash in/cash out)
Error checking	Built-in (debits must equal credits)	No built-in check (easy to miss mistakes)
Financial statements	Can generate balance sheets, income statements, and cash flow statements	Only generates cash flow reports
Complexity	More detailed (but software automates it)	Simple (like a personal budget)
Best for	All businesses (small to large)	Freelancers or micro-businesses with no inventory/credit

Example: Why Double Entry Is More Reliable

A freelance writer invoices a client $1,000 (credit) and buys $200 in software (cash).

Single entry: Records “Cash -$200” (software) and nothing for the $1,000 invoice (until cash is received). The books show a $200 loss, but the writer actually earned $800.
Double entry: Records “Accounts Receivable +$1,000 (Dr), Revenue +$1,000 (Cr)” and “Software +$200 (Dr), Cash -$200 (Cr).” The books show $800 in profit—accurate and balanced.

Common Double Entry Mistakes (And How to Fix Them)

Even beginners can avoid these common errors with a little awareness:

Mistake 1: Debiting/Crediting the Wrong Account Type

Example: You sell a product for cash but credit “Cash” (Asset) instead of “Sales Revenue” (Revenue).
Fix: Remember the account type rules: Revenue is credited to increase it. Correct entry: Debit Cash, Credit Sales Revenue.

Mistake 2: Unequal Debits and Credits

Example: You record a $500 supply purchase as “Debit Supplies $500, Credit Cash $400.”
Fix: Always add up debits and credits before saving. If they don’t match, check the amounts or account types.

Mistake 3: Forgetting to Record Both Sides of a Transaction

Example: You pay $300 in rent but only credit Cash (no debit to Rent Expense).
Fix: Use the 4-step process above—always identify two accounts per transaction.

How to Get Started with Double Entry Accounting

You don’t need to be an accountant to use double entry—here’s how to start:

Step 1: Choose Accounting Software

Software like QuickBooks, Xero, or Wave automates double entry journal entries. For example:

When you invoice a client, the software automatically debits Accounts Receivable and credits Revenue.
When you pay a bill, it debits Accounts Payable and credits Cash.

Step 2: Set Up Your Chart of Accounts

A “chart of accounts” is a list of all your business accounts (e.g., Cash, Accounts Receivable, Rent Expense). Most software has pre-built templates—just customize them for your business.

Step 3: Practice with Simple Transactions

Start with small, frequent transactions (e.g., buying supplies, invoicing clients) to get comfortable. Use the 4-step process above until it becomes second nature.

Step 4: Reconcile Your Books Monthly

At the end of each month, compare your accounting records to your bank statements. If they match, your double entry books are accurate.

Final Takeaway: Double Entry = Trustworthy Books

Double entry accounting isn’t just a rule—it’s a way to keep your business’s financial records honest. By requiring every transaction to balance, it ensures you never overstate profits, understate debts, or miss critical errors.

And with modern accounting software, you don’t have to memorize every debit/credit rule—you just need to understand the “why” behind the balance. Whether you’re a solopreneur or a growing business, double entry accounting gives you the clarity to make smart financial decisions.