Journal Entries Masterclass: From Basics to Advanced
Journal entries are the heartbeat of accounting. Every financial event — every sale, purchase, payment, and adjustment — is captured as a journal entry. Master these, and you master accounting.
The Golden Rules
Before any journal entry, remember:
- Every transaction has at least two sides (debit and credit)
- Debits must always equal credits
- Debit increases assets and expenses
- Credit increases liabilities, equity, and revenue
Normal Balances
| -- | -- | -- |
|---|
Level 1: Simple Entries
Sale on Credit (B2B Invoice)
*Customer buys SAR 11,500 including 15% VAT*
| -- | -- | -- |
|---|---|---|
| Accounts Receivable | 11,500 | |
| Sales Revenue | 10,000 | |
| VAT Payable (2108) | 1,500 |
Cash Receipt from Customer
*Customer pays SAR 5,000 against their balance*
| -- | -- | -- |
|---|---|---|
| Bank Account | 5,000 | |
| Accounts Receivable | 5,000 |
Purchase of Inventory on Credit
*Supplier invoice SAR 23,000 including VAT*
| -- | -- | -- |
|---|---|---|
| Inventory | 20,000 | |
| VAT Receivable (1108) | 3,000 | |
| Accounts Payable | 23,000 |
Salary Payment
*Monthly salaries: SAR 50,000 basic, GOSI employer 11%*
| -- | -- | -- |
|---|---|---|
| Salary Expense | 50,000 | |
| GOSI Expense (Employer) | 5,500 | |
| Bank Account | 50,000 | |
| GOSI Payable | 5,500 |
Level 2: Adjusting Entries
These are made at month/year end to match expenses to the correct period.
Monthly Depreciation
*Asset cost SAR 120,000, 10-year life, straight-line*
| -- | -- | -- |
|---|---|---|
| Depreciation Expense | 1,000 | |
| Accumulated Depreciation | 1,000 |
*Monthly = (120,000 ÷ 10 years) ÷ 12 months = SAR 1,000*
EOS Accrual
*Employee earns SAR 15,000 monthly, 3 years service* *Monthly EOS accrual = (15,000/30 × 15 × 1) ÷ 12 = SAR 625*
| -- | -- | -- |
|---|---|---|
| EOS Expense | 625 | |
| EOS Provision | 625 |
Prepaid Expense Recognition
*Annual insurance premium SAR 24,000 paid in January* *Monthly recognition = 24,000 ÷ 12 = SAR 2,000*
| -- | -- | -- |
|---|---|---|
| Insurance Expense | 2,000 | |
| Prepaid Insurance | 2,000 |
Level 3: Complex Entries
Asset Disposal (Gain)
*Sell equipment for SAR 30,000. Cost SAR 80,000, accumulated depreciation SAR 60,000*
| -- | -- | -- |
|---|---|---|
| Bank | 30,000 | |
| Accumulated Depreciation | 60,000 | |
| Property & Equipment | 80,000 | |
| Gain on Disposal | 10,000 |
*Book value = 80,000 − 60,000 = 20,000. Proceeds 30,000 > Book value 20,000 = Gain of 10,000*
Credit Note (Sales Return)
*Customer returns goods worth SAR 5,750 including 15% VAT*
| -- | -- | -- |
|---|---|---|
| Sales Revenue | 5,000 | |
| VAT Payable | 750 | |
| Accounts Receivable | 5,750 |
Year-End Closing Entry
*Close revenue and expenses to retained earnings* *Revenue SAR 500,000, Expenses SAR 380,000, Net Income SAR 120,000*
| -- | -- | -- |
|---|---|---|
| All Revenue Accounts | 500,000 | |
| All Expense Accounts | 380,000 | |
| Retained Earnings | 120,000 |
The Most Common Mistakes
- Forgetting VAT on sales and purchases
- Using gross salary instead of net in payment entries
- Recording interest in the wrong period
- Mixing personal and business transactions
- Forgetting to accrue EOS, leave, and GOSI monthly
Practice Makes Perfect
Journal entries are mastered through practice, not memorization. Use real accounting software to practice these entries — the feedback from a balanced trial balance will confirm your work immediately.