Compound Journal Entry

Compound entry or compound journal entry is the combination of two or more simple entry. It involves more than one debit or credit. In simple entry, we have only one debit and credit. However, in compound entry, we make more than one debit, credit or to both.

The purpose is to avoid too many accountingjournal entrieswhen you can save time to pass it into one compound entry.

Example

ABC Company pays $3,000 to supplier A for the office furniture purchased amounting to $1,500 on 01 Dec. The excess amount is adjustable for earlier shopping from the same supplier. Pass the compound journal entry.

Solution

Date

Account

Debit

Credit

O1 Dec

Furniture Fixed Assets

1,500

Accounts Payable

1,500

Cash

3,000

Another good example of compound journal entry is the payment of salaries because it involves the tax deductions as well. Entry would be as follows:

Date

Account

Debit

Credit

O1 Dec

Salaries Expense

xxxxx

Tax on Salaries Payable

xxxxx

Cash

Xxxxx

Beginners in accounting are recommended to pass on the simple journal entry to record financial transactions. This enables them to understand the transaction flow easily and make their solid accounting foundation. Gradually when they become familiar with transaction process and flow, they can easily move on the complex or compound journal entry to record the accounting record. Here is another example which we will use to explain compound journal entry.

Example


1. Insurancepremium paid amounting $5,000, out of which $2,000 needs to be expensed out in this accounting period,
2. Accrual of salaries of 02 staff at the end of the period for $100 each.
3. A check amounting to $3,000 is issued to a supplier for the payment of a laptop costing $1,000. The excess amount is paid to settle the previous balance of the supplier.
4. The loan taken from the bank on 1st Jan 2017 amounting to $10,000. The interest rate on this loan is 10{1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} and loan is payable on 31st December, 2017.
5. Accounting software amounting to $1,000 was purchased and half of the amount paid initially.
Required: Pass the above entries as simple entry and compound entry.

Simple Entry

DebitCredit
Prepaid insurance5,000
Cash5,000
Inurance expense2,000
Prepaid insurance2,000
Salary expense100
Salary expense100
Accrued salary100
Accrued salary100
Fixed assets1,000
Bank1,000
Accounts payable2,000
Bank2,000
Loan payable10,000
Bank10,000
Interest expense1,000
Interest payable1,000
Computer fixed asset1,000
Accounts payable1,000
Accounts payable500
Cash500
Compund Journal Entries
Prepaid insurance3,000
Insurance expense2,000
Cash5,000
Salary expense200
Accrued salaries200
Fixed assets1,000
Accounts payable2,000
Bank3,000
Loan payable10,000
Interest expense1,000
Bank10,000
Interest payable1,000
Computer Fixed assets1,000
Accounts payable500
Cash500