Journal Entries: Examples for Invoices, Payments and More

Quick answer: Journal entries record each transaction as equal debits and credits. For a sales invoice, debit accounts receivable and credit revenue (plus sales tax payable). When the customer pays, debit cash and credit receivables. Credit notes, deposits and bad debts each follow their own pattern, shown with examples below.

Most small business owners never write journal entries by hand, because accounting software creates one every time an invoice or bill is saved. But knowing what the software is doing helps you fix miscategorized payments, record unusual items, and understand what your accountant means when they say "I posted an adjusting entry". This guide walks through the transactions around an invoice from start to finish, with every debit and credit spelled out.

On scope: the free invoice generator creates PDF invoices in your browser. It does not record entries, track payments or keep books, so you will enter each invoice in your accounting software or spreadsheet. The examples below show what that entry should look like.

What a journal entry contains

Every entry has the same parts:

Field	Purpose
Date	When the transaction happened (or the invoice date)
Accounts	At least two accounts from your chart of accounts
Debit amount(s)	Increases assets and expenses; decreases liabilities, equity and revenue
Credit amount(s)	Increases liabilities, equity and revenue; decreases assets and expenses
Reference	Invoice, bill or check number linking to the source document
Description	A short memo explaining the transaction

Total debits must equal total credits in every entry. If the debit and credit rules are new to you, start with our guide to double-entry rules for beginners, then come back to these examples.

All examples below assume accrual accounting and use an illustrative business with an 8% sales tax rate. Rates and tax rules vary by location; the sales tax calculator can help you split tax-inclusive totals.

Journal entries examples for the invoice lifecycle

1. Sales invoice with sales tax

You invoice a client $2,000 for services plus 8% sales tax. Tax: $2,000 × 0.08 = $160. Invoice total: $2,160.

Account	Debit	Credit
Accounts receivable	$2,160
Service revenue		$2,000
Sales tax payable		$160
Totals	$2,160	$2,160

The tax goes to a liability because you are collecting it on behalf of the government. Recording it as revenue overstates income. Under cash-basis accounting, no entry is made at this point; see cash vs accrual accounting for the difference.

2. Payment received in full

The client pays the $2,160 invoice by bank transfer.

Account	Debit	Credit
Cash (bank)	$2,160
Accounts receivable		$2,160

Revenue is not touched again. A common error is to record the payment as new income, which double-counts the sale.

3. Partial payment and processor fees

A different client pays $1,000 of a $1,500 invoice by card, and the processor deducts an illustrative $30 fee before depositing $970.

Account	Debit	Credit
Cash (bank)	$970
Merchant fees expense	$30
Accounts receivable		$1,000
Totals	$1,000	$1,000

The client still owes $1,500 − $1,000 = $500. Our guide to the partial payment invoice shows how to present the remaining balance to the customer.

4. Credit note

You issue a credit note for $200 plus $16 tax ($200 × 0.08) because part of a delivery was rejected. The client has not paid yet.

Account	Debit	Credit
Sales returns and allowances	$200
Sales tax payable	$16
Accounts receivable		$216
Totals	$216	$216

Sales returns and allowances is a contra-revenue account that reduces net sales on the P&L. Some small businesses debit revenue directly instead; either works if you are consistent. If the client had already paid, credit cash (for a refund) or leave the credit on their account to offset the next invoice. The credit note guide covers what the document itself must show.

5. Customer deposit, then the final invoice

A client pays a $1,500 deposit before work starts on a $5,000 project (tax ignored here for clarity).

Account	Debit	Credit
Cash (bank)	$1,500
Customer deposits (liability)		$1,500

When the project is delivered and the final invoice is issued:

Account	Debit	Credit
Customer deposits (liability)	$1,500
Accounts receivable	$3,500
Service revenue		$5,000
Totals	$5,000	$5,000

The balance due is $5,000 − $1,500 = $3,500. The deposit is a liability until earned, which is the same idea explained in deferred vs accrued revenue. Be aware that in some VAT and GST systems tax becomes due when a deposit is received, not when the work is finished; check the rules where you are registered. Our deposit invoice guide covers how to bill it.

6. Bad debt write-off

A $600 invoice is clearly uncollectible. Under the direct write-off method:

Account	Debit	Credit
Bad debt expense	$600
Accounts receivable		$600

Under the allowance method, which accrual-based financial statements generally use, you estimate losses in advance (debit bad debt expense, credit allowance for doubtful accounts) and later write off the specific invoice by debiting the allowance and crediting receivables. Tax treatment is separate: the IRS explains in Topic 453, Bad debt deduction that you generally cannot deduct an uncollected amount you never reported as income, which affects cash-basis businesses. The full process is in our bad debt write-off guide.

7. Supplier bill and payment

The purchase side mirrors the sales side. A $300 bill for printing arrives:

Account	Debit	Credit
Printing expense	$300
Accounts payable		$300

When you pay it, debit accounts payable $300 and credit cash $300. The difference between the two documents is explained in purchase invoice vs sales invoice.

8. Owner's draw

The owner of a sole proprietorship takes $1,000 for personal use: debit owner's draws $1,000, credit cash $1,000. Draws reduce equity; they are not an expense.

Types of journal entries

Beyond the everyday transactions above, accountants group journal entries by purpose:

Type	When it is used	Example
Opening	Starting a new set of books	Recording the cash, equipment and loans the business already has
Routine	Day-to-day activity	Invoices, bills, payments, payroll
Compound	More than two accounts affected	An invoice with revenue and sales tax lines
Adjusting	Period end, to follow accrual rules	Depreciation, accrued expenses, deferred revenue earned
Correcting	Fixing an earlier error	Moving a payment posted to the wrong customer
Reversing	Start of the next period	Undoing an accrual once the real bill arrives
Closing	Year end	Moving revenue and expense balances into equity

Software creates routine journal entries automatically from invoices, bills and bank transactions. Manual journal entries are usually reserved for adjusting, correcting and closing items, and many accountants review every manual entry because that is where errors and unusual items tend to appear.

What changes on the cash basis

If your books use the cash method, the entries are simpler. You do not record receivables when you invoice; instead, when the client pays, you debit cash and credit revenue (and sales tax payable, where that applies). Credit notes affect the books only if money is refunded, and bad debts generally do not arise because unpaid invoices were never counted as income. The trade-off is that your books do not show what customers owe you, so you need to track open invoices separately, for example with an aging list.

Summary table

Transaction	Debit	Credit
Sales invoice	Accounts receivable	Revenue; sales tax payable
Payment received	Cash	Accounts receivable
Processor fee on payment	Merchant fees expense	Accounts receivable (with cash)
Credit note	Sales returns; sales tax payable	Accounts receivable or cash
Deposit received	Cash	Customer deposits
Deposit applied to invoice	Customer deposits; accounts receivable	Revenue
Bad debt (direct)	Bad debt expense	Accounts receivable
Supplier bill	Expense or asset	Accounts payable
Owner's draw	Owner's draws	Cash

Checking that the journal entries balance

Adding the debits from examples 1 to 6 above: $2,160 + $2,160 + $1,000 + $216 + $1,500 + $5,000 + $600 = $12,636. The credits: $2,160 + $2,160 + $1,000 + $216 + $1,500 + $5,000 + $600 = $12,636. Because each entry balances individually, the totals always agree. Once posted to the general ledger, these entries roll up into a trial balance at month-end.

Common mistakes

• Recording payments as revenue. If the invoice is already booked, payment only moves receivables to cash.
• Including sales tax in revenue. It is a liability until you remit it.
• Booking deposits as income on receipt. They are a liability until earned.
• Recording the net card deposit as the full payment. The fee disappears and the invoice stays partly open.
• Deleting invoices instead of issuing credit notes. It breaks the audit trail and the number sequence.
• Writing off bad debts without documentation. Keep collection notes and the reason for the write-off.
• Vague descriptions. "Payment" tells nobody anything; "INV-1042 paid by ACH" does, and it lets anyone trace the entry back to its source document in seconds.

Checklist for every entry

• The date matches the source document.
• Debits equal credits.
• The reference number links to the invoice, bill or receipt.
• Tax is split into its own liability line.
• The description would make sense to someone else a year from now.
• The source document is saved with the entry.

Next step

Good entries start with good documents. Make sure every invoice and credit note carries a unique number, date, tax breakdown and customer details, then record it the same day using the patterns above. If something unusual comes up, such as a customer paying two invoices with one transfer, a refund to a different card, or a payment in a foreign currency, sketch the debits and credits first and confirm they balance before you post anything. When in doubt, ask your accountant how they want it recorded; a two-minute question is cheaper than a year-end correction. For more on the reports these entries feed, browse the business finance articles.