Compound journal entry
Compound journal entry is one of two types of entries in the general journal entry. Unlike the "simple entry" in which transaction posting applies to only two accounts (one debit account and one credit account), an ompound entry is a transaction posting that affects three or more accounts[1].
Types of recording
it is an accounting entry with the following combinations[2]:
- One debit and two or more credits
- One credit and two or more debits
- Two or more debits and credits.
Circumstances
Below conditions must be met[3]:
- Only one account for all different transactions must be either debit or credit,
- Date of making the transaction should be the same,
- Their nature should be the same.
In a coumpond journal entry, credit, debit or both parts of an entry consist of more than one account.
An example
Case study: on 1st of July, the company buys a delivery van costs $1,4400 years, now pays $8800 cash and agrees to pay the remaining $6600 on the account (to be paid later)
| General journal | |||||
|---|---|---|---|---|---|
| Date | Description | Ref. | Debit | Credit | |
| July1 | |||||
| 10 | Equipment | 1,4400 | |||
| Cash in Checking | 8800 | ||||
| Accounts Payable (Purchased van for cash with balance on account) | 6600 | ||||
The standard format requires all charges to be exchanged before the credit[4].
Advantages of Compound journal entry
Compound journal entries offer several advantages to businesses. Here are some of them:
- They allow for more efficient record-keeping. By consolidating multiple transactions into one entry, compound journal entries reduce the amount of bookkeeping paperwork and make it easier to keep track of all financial information.
- Compound journal entries can also improve accuracy. Because all related transactions are entered in one entry, it reduces the possibility of mistakes or discrepancies.
- Compound journal entries also help simplify the process of reconciliation. By having all related transactions in one entry, it makes it easier to quickly identify any errors or discrepancies.
- They also provide greater transparency, as all related transactions are made visible in one entry. This makes it easier to track where funds have been allocated and to identify trends.
Limitations of Compound journal entry
Compound journal entries have several limitations that should be taken into consideration when recording financial transactions. These limitations include:
- Complexity: Compound journal entries can become complex, as they involve multiple accounts and require a more detailed analysis of the transaction.
- Manual entry errors: The complexity of compound journal entries can lead to errors in manual entry if the details are not fully understood.
- Time consuming: Compound journal entries can be time consuming, as it requires a thorough understanding of the transaction and the accounts involved.
- Difficult to track: Compound journal entries can be difficult to track, as multiple accounts are involved in the transaction.
- Overlooked distinctions: Compound journal entries may overlook distinctions between debit and credit accounts if not properly analyzed.
Compound journal entry is one of two types of entries in the general journal entry. Unlike the "simple entry" in which transaction posting applies to only two accounts (one debit account and one credit account), an ompound entry is a transaction posting that affects three or more accounts. Other approaches related to Compound journal entry include:
- Adjusting entries: Adjusting entries are journal entries made at the end of an accounting period to correct accounts before preparing financial statements. They are used to recognize revenues, expenses, assets and liabilities that have not yet been recorded in the books.
- Closing entries: Closing entries are journal entries made at the end of an accounting period to reset all temporary accounts to zero.
- Reversing entries: Reversing entries are journal entries made at the beginning of an accounting period to reverse the effects of accrual-basis adjusting entries that were made at the end of the previous period.
In conclusion, Compound journal entry is an important type of journal entry which affects three or more accounts, other approaches related to Compound journal entry include adjusting entries, closing entries and reversing entries.
Footnotes
| Compound journal entry — recommended articles |
| Reversing entry — Books of original entry — Book of original entry — Control account — Closing entries — Month end closing — Opening entries — Open item — Closing the accounts |
References
- Banerjee B, K., (2010)Financial Accounting : Concepts, Analyses, Methods And Uses P H I Learning Pvt. Ltd., 2010
- Chatfield M., Vangermeersch R., (2014)The History of Accounting (RLE Accounting): An International Encylopedia Routledge, 2014
- Donatila A. J. (2007)Fundamentals of Accounting: Basic Accounting Principles Simplified for Accounting Students, AuthorHouse, 2007
- Kumar V., (2018)Accounting Course,Accounting Education , 2018
- Tulsian P.C. & Tulsian Bharat, (2014), Financial Accounting for B.Com (Programme), S. Chand Publishing, 2014
- Weil BS. H., Noi S. A., (2001), Introductory Accounting Skills: For Financial and Management Accounting Students, Juta and Company Ltd, 2001
- Weygandt J. J., Kieso E.D., (2018)Accounting Principles, John Wiley & Sons, 2018
Author: Agnieszka Katarzyna Sikora
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