Journal entries — the daily work — Accounting Module 6

Journal entries are the daily currency of bookkeeping. Every economic event hits the journal first — chronologically — before being posted to the appropriate T-accounts. A journal is essentially a transaction log, and like every transaction log in software engineering, it's append-only and forms the auditable history of everything that happened.

The anatomy of a journal entry

text

Date         Account                    Debit       Credit    Narration
────────────────────────────────────────────────────────────────────────────
2026-01-15   Inventory                  50,000              Bought 100
             Accounts Payable                       50,000   units from
                                                             Mwangi Supplies,
                                                             30-day terms
────────────────────────────────────────────────────────────────────────────
2026-01-20   Cash                       80,000              Sold 50 units
             Sales Revenue                          80,000   for cash to
                                                             walk-in customer
             Cost of Goods Sold         30,000              Recognised cost
             Inventory                              30,000   of goods sold
────────────────────────────────────────────────────────────────────────────

Two journal entries. The second is a compound entry — the sale and the inventory release happen as one event, two double-sided entries.

The five most-written entries in business

Cash sale: DR Cash / CR Sales Revenue. If inventory: also DR COGS / CR Inventory.
Credit sale: DR Accounts Receivable / CR Sales Revenue. (Cash comes later, with: DR Cash / CR AR.)
Inventory purchase on credit: DR Inventory / CR Accounts Payable.
Payroll: DR Salaries Expense / CR Cash (or Salaries Payable if not yet paid).
Fixed asset purchase: DR Fixed Asset / CR Cash (or CR Loan Payable if financed).

The narration is not optional

The narration is the one piece of human-readable context the journal entry carries forward. Months later, when an auditor or you yourself wants to know 'what was this $5,000 payment for?', the narration is your answer. 'Misc expense' is a useless narration. 'Office cleaning — January, invoice from Acme Cleaning' is useful. Hold yourself to narrations that survive the test of time.

Reversing and correcting entries

When you find an error in a previously-recorded entry, you don't go back and modify the original — that breaks the audit trail. You record a correcting entry that reverses the error and posts the right entry. If you misclassified a KES 5,000 rent payment as an electricity expense:

text

Original (wrong):
   DR Electricity Expense   5,000
   CR Cash                  5,000

Correcting entry:
   DR Rent Expense          5,000     (the correct charge)
   CR Electricity Expense   5,000     (reverse the wrong charge)

Net effect: Cash unchanged (already posted), expense reclassified.

Correcting entries preserve the audit trail. Never delete a posted entry.

Exercise

Write the journal entries for the following week of a Kenyan SACCO branch: (1) Members deposited a total of KES 2,500,000 in savings; (2) The SACCO disbursed a KES 800,000 loan to a member, transferring cash to their account; (3) The branch paid KES 150,000 in salaries; (4) The branch received KES 30,000 in interest on a loan that was already on the books; (5) The branch wrote down KES 50,000 of a defaulted loan as bad debt.