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What is Compound Journal Entry?- Definition
A compound journal entry is a journal entry that involves more than two accounts. When two or more transactions of the same nature take place on the same date, accountants prefer to make a compound journal entry instead of two or more separate journal entries.
There must be two conditions which should be fulfilled:
- Date of transactions being compounded should be same
- Their nature should also be same.
In a compound journal entry, debit, credit, or both parts of the entry consist of more than one accounts.
Example 1
On June 01, 2016, Mr. Sam starts business with $25,000 cash and furniture costing $5,000.
The above transaction consists of three accounts – cash account, furniture account and capital account. It may be journalized by making either two separate journal entries or one compound journal entry. Both the methods are illustrated below:
If two separate journal entries are made
If a compound journal entry is made
Example 2
On June 10, Mr. Sam receives $1,950 cash from Mr. X (a customer) and allowed him a cash discount of $50.
The above transaction also has three accounts – cash account, accounts receivable account and discount allowed account. Again, Mr. Sam has the option to make two separate journal entries or a compound journal entry.
If two separate journal entries are made
If a compound journal entry is made:
Example 2
Cash 1900
Discount allowed 50
Accounts Receivable Mr. X 1950
cash A/C Dr
discount allowed Dr
To Mr. x a/c
Sold goods to z for cash 2000 on credit 3000
Purchase goods for cash 2000 from c 1000 and from d on credit 3000