Compound Journal Entry

A compound journal entry is the journal entries in the accounting system where more than one account is debited or credited, i.e., when a transaction has to affect 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 Accounting EntryAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more. 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 debit, or
  3. Two or more debits and credits

As per the journal entry ruleRule Of Journal EntryJournal Entries are records used to keep a tab on every business transaction through debits & credits. The rules include having a minimum of 2 accounts (1Debit & at least 1Credit), listing debits before credits, & debit amounts always being equivalent to credit amounts. read more, the total debits and credits should always be equal. Combination journal entries may include DepreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more, payroll, various items in a particular invoice, bank reconciliation, a single transaction involving multiple components, etc. Professionals can merge different journal entries based on their professional judgment and experience.

Compound-Entry

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Source: Compound Journal Entry (wallstreetmojo.com)

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

Disadvantages

Conclusion

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

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This article has been a guide to the Compound Journal Entry. Here, we discuss compound journal entry meaning and examples, advantages, and disadvantages. You can learn more about financing from the following article: –

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