Compound Journal Entries
Compound journal entry is an accounting entry which affects three or more account heads. A simple journal entry has just two rows i.e. one debit and one credit, whereas a compound journal entry has three or more rows.
A compound entry is actually a combination of two or more simple journal entries but instead of recording numerous separate journal entries, it is better to merge multiple journal entries of a single accounting event into a single compound entry because it saves time and keeps the related debits and credits in one place in the journal.
The following examples illustrate the format of a compound journal entry:
On Jan 1, 20X3 Company T purchased a computer costing $1,000 from a supplier and issued a check of $3,400. The excess amount fully settles a previous amount owed by the company to the supplier.
Since the total payment of $3,400 comprised of $1,000 for computer and the remaining $2,400 for past payable, this transaction may be recorded in two separate journal entries:
- Debit Equipment and Credit Cash for $1,000 each; and
- Debit Payables and Credit Cash for $2,400 each.
Alternatively, it is much faster and intuitive if we record the above transaction as a single compound entry as follows:
|Jan 1, 20X3||Equipment||1,000|
FGH Company obtained a loan of $10,000 @12% interest on July 1, 20X2. The loan was repaid on Dec 31, 20X2, the year-end of FGH Company.
Interest expense on loan
= $10,000 × 6/12 × 12%
The repayment can be recorded using the following compound journal entry:
|Dec 31, 20X2||Loan Payable||10,000|
Written by Irfanullah Jan and last modified on