Compound Journal Entry

Last Updated :

21 Aug, 2024

Blog Author :

Wallstreetmojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya

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    A compound journal entry is the journal entry in the accounting system where more than one account is debited or credited, i.e., when a transaction affects more than the three accounting heads.

    Compound Journal Entry Definition

    A compound journal entry means a combination of two or more debits and credits in a single  accounting entry. It means it is a journal entry with the following combinations: –

    1. One debit and two or more credits, or
    2. One credit and two or more debits, or
    3. Two or more debits and credits

    As per the debits & credits, the rules include having a minimum of 2 accounts (1debit & at least 1 credit), listing debits before credits, & debit amounts always being equivalent to credit amounts. Professionals can merge different journal entries based on their professional judgment and experience. Combination journal entries may include depreciation, payroll, various items in a particular invoice, bank reconciliation, a single transaction involving multiple components, etc.

    Compound-Entry
    • A compound journal entry is an accounting entry that consists of a combination of two or more debits and credits in a single accounting entry.
    • In an accounting system, compound journal entry saves time, provides better presentation, and gives a bird's eye view of the analysis while presenting the data as a summary.
    • To frame the compound entries for all tasks, one requires expertise to ensure that the applicable standards, rules, and guidelines are followed.
    • Considerable risk of data misreporting arises if the compound journal entry criterion is not fulfilled, which could also violate the applicable standard's disclosure requirement.

    Compound Journal Entry Examples

    Let us understand the compound entry with examples: –

    Example #1

    ABC Ltd., on 31st March, has the following list of assets with depreciation amount to be charged in the books of account:

    Example 1

    Please pass the compound journal entry individually and in a compound format.

    Solution:

    Compound Journal Entry 1
    Compound Journal Entry 1-1

    The above data shows that compound entry saves time and energy, as more data can be presented concisely with better presentation.

    Example #2

    Mr. ABC admitted his son to a B-school for management studies and paid $90,000, including all the components. The list of the element of the same are as given below: –

    Example 2

    Please pass compound journal entries in the books of B-school individually and compounded ones.

    Solution:

    Journal Entry
    Compound Journal Entry 2-1

    Advantages

    • Saves time – Entries like payroll, depreciation, fees, etc., for individual employees or students lead to many entries. However, it saves time and energy for other productive tasks when presented in compounded form.
    • Better presentation – Compound entries present the data in a better manner as compared to separate entries.
    • Data available in summarise form – Compound entries present the data in summary, which gives a bird's eye view of the analysis.

    Disadvantages

    • Requires expertise – To frame compound entries for all the tasks is not a cup of tea for all individuals. Many items like leases, etc., require a high level of professional expertise. It is not easy to frame such entries in compound form.
    • Chances of misreporting – While framing compounding entries, one must ensure that applicable standards, guidelines, and rules are followed. If not taken care of, there are high chances of data misreporting and may breach the applicable standard's disclosure requirement.

    Conclusion

    Compound entry is a more efficient form of accountancy, enhancing the accountant’s productivity and leading to a better accounting presentation. Moreover, according to the standard and guidelines in a particular nation, the accountant can frame compound journal entries and optimize time and effort.

    Frequently Asked Questions (FAQs)

    What are the compound entry accounting examples?

    Credit card transactions, multiple petty cash purchases, business loan payments, payroll, and sales tax are some compound journal entry examples.

    What are the compound journal entry requirements?

    One must fulfill the two conditions to record a compound journal entry: the compounded transaction date must be the same, and the nature of these transactions must also be the same.

    What is the simple vs compound journal entry?

    In the accounting system, in a simple journal entry, one needs a debit account and the corresponding account to credit. In contrast, a compound journal entry includes more than two accounts.

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