Compound Journal Entry

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.

• 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.

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:

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

Solution:

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: –

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

Solution:

• 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.

• 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.

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.

This article is a guide to Compound Journal Entry. Here, we discuss the Compound Journal Entry examples and their meaning, advantages, and disadvantages. You can learn more about financing from the following articles: –

• Compounding Examples
• Examples of Journal Entries
• General Journal in Accounting
• Depreciation Journal Entry Examples