Your first journal entry
The two-sided story behind every transaction.
By Solomon Ajayi · Free to read, no signup
You are starting a small fintech. Your first move is funding the business with your own money. Every accounting transaction has two sides: where money came from, and where it went. Let's see what that looks like in a real ledger.
Most engineers reach for the obvious model first: a balance column you add to and subtract from. It works right up until you need to answer a question it cannot, like where this money came from, who it belongs to, and whether you can prove the books are intact. A single mutable number has no memory and no second opinion. Double-entry is the fix the world settled on four centuries ago, and it is still what every bank, card network, and fintech runs on today.
The core rule is simple: every transaction touches at least two accounts, and the total moved out of some accounts must equal the total moved into others. Money never appears or disappears, it only moves. When you fund the business, the cash does not come from nowhere. It comes from you, the owner, so the business records both the cash it gained and the claim you now have on it. Two sides, always.
The two sides are called debit and credit. Resist the urge to read them as plus and minus. A debit increases an asset but decreases a liability; a credit does the opposite. They are directions, not signs, and which direction moves an account up depends on what kind of account it is. That is the one piece of memorization in all of accounting, and once it clicks, every entry in this course follows from it.
Worked example, step by step
Owner funds the business with ₦50,000
You take ₦50,000 from your personal account and put it into the business. The business and you are separate entities now. The business gained cash. The business now owes you ₦50,000, called Capital.
| Account | Debit | Credit |
|---|---|---|
| Cash (1000) | ₦50,000.00 | |
| Owner's Capital (3000) | ₦50,000.00 |
Cash (an asset) goes up, so we DEBIT it. Capital (equity) is the source of that money, so we CREDIT it. Debits = Credits, ₦50,000 each side.
Owner withdraws ₦10,000 for personal use
Two weeks later, you take ₦10,000 out of the business for yourself. This is called a Drawing. The business has less cash, and you have a smaller claim on it.
| Account | Debit | Credit |
|---|---|---|
| Owner's Capital (3000) | ₦10,000.00 | |
| Cash (1000) | ₦10,000.00 |
Cash (asset) goes down, so we CREDIT it. Capital (equity) goes down too, so we DEBIT it. The business still owes you the difference: ₦40,000.
Takeaway
Capital is what the business owes the owner. It goes up when the owner contributes money or the business earns profit. It goes down when the owner withdraws or the business takes a loss.
Practice this on a real ledger
Reading is half of it. Open this lesson in the lab to post the entries yourself against a real Postgres-backed double-entry ledger, with the validation on. Free, your sandbox is yours.