Compound journal entry

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:

  1. Date of transactions being compounded should be same
  2. 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

compound journal entry

If a compound journal entry is made

Compound journal entry

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

compound-journal-entry-img3

If a compound journal entry is made:

compound-journal-entry-img4

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