Compound Journal Entries

A compound journal entry is an accounting entry which effects more than two account heads. A simple journal entry has one debit and one credit whereas a compound journal entries includes one or more debits and/or credits than a simple journal entry. A compound journal entry may combine two or more debits and a credit, or a debit and two or more credits, or two or more of both debits and credits.

A compound entry is simply a combination of two or more simple journal entries but instead of recording numerous simple journal entries it is better to record journal entries of single accounting event as a compound entry because it saves time and keeps related debits and credits in one place.

Example

The following examples illustrate the format of a compound journal entry:

Example 1: On Jan 1, 20X3 Company T purchased a computer costing $1,000 to a supplier and issued a check of $3,400. The excess amount fully settles a previous amount owned by the company to the supplier. This will be recorded as shown below:

DateAccountDebitCredit
Jan 1, 20X3Purchases1,000
Accounts Payable2,400
Cash3,400

Example 2: 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 load = $10,000 × 6/12 × 12% = $600.

The repayment can be recorded using the following compound journal entry:

DateAccountDebitCredit
Dec 31, 20X2Loan Payable10,000
Interest Expense600
Cash10,600

Written by Irfanullah Jan