A compound journal entry is the journal entries in the accounting system where more than one account is debited or more than one account is credited i.e. when a transaction has to effect on more than the three accounting heads.
Compound Journal Entry Definition
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. . It means it is a journal entry with the following combinations:
- One debit and two or more credits, or
- One credit and two or more debts, or
- Two or more debits and credits
As per the rule of journal entryRule 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. , the total of debits and credits should always be equal. Combination Journal Entries may include Depreciation, Payroll, various items in a particular invoice, bank reconciliation, the single transaction involving multiple components, etc. Professionals based on their professional judgment and experience can merge various journal entries.
Compound Journal Entry Examples
Let’s understand the compound entry with examples:
ABC limited, on 31st March, has the following list of assets with depreciation amount to be charged in the books of account:
Please pass the compound journal entry individually and in a compound format.
From the above, it is evident that compound entry saves time and energy, as more data can be presented concisely with better presentation.
Mr. ABC put his son to B-school for management studies. There he paid $ 90,000, including all the components. The list of the component of the same are as given below:
Please pass compound journal entry in the books of B-school individually and compounded one.
- Saves time – Entries like payrollPayrollPayroll refers to the overall compensation payable by any organization to its employees on a certain date for a specific period of services they have provided in the entity. This total net pay comprises salary, wages, bonus, commission, deduction, perquisites, and other benefits., depreciation, fees, etc. for individual employees or students leads to a huge number of entries. However, when they are presented in compounded form, it saves a lot of time and energy, which can be utilized in other productive tasks.
- 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 better bird’s eye view for the analysis.
- Requires Expertise – To frame compound entry for all the tasks is not a cup of tea of all the individuals. There are many items like leasesLeasesLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.”, etc., which require a high level of professional expertise. It’s not easy to frame such entries in compound form.
- Chances of misreporting – While framing compounding entries, utmost care is needed to be taken that applicable standard, guidelines, and rules are duly followed. If care is not taken, then there are high chances that data will be misreported, and applicable standard’s disclosure requirement may breach.
Thus, compound entry is a more efficient form of accountancy, which enhances the productivity of the accountant and leads to a better accounting presentation. As per the applicable standard and guidelines in a particular nation, the accountant can frame compound journal entry and try to optimize the time and efforts.
This has been a guide to Compound Journal Entry. Here we discuss the meaning of Compound Journal Entry along with examples, advantages, and disadvantages. You can learn more about financing from the following articles –