Compound Journal Entry Entries With More Than Two Accounts

For example, you withdraw money from your petty cash account to pay for office supplies and furniture. You would debit both your Office Supplies and Furniture accounts and credit your Petty Cash account. There are a number of times you may need to make a compound journal entry.

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. A simple journal entry comprises of only two account heads – one account is debited and the other credited.

Multiple petty cash purchases

This makes later transfer of the information easier, as well as checking the figures in the original journal. There are only three accounts involved in compound entries passed in above two examples. Some accounting entries are more complex and may contain dozens of account heads. An example of such entries is the journal entry for recording employees’ payroll.

It affects two or more accounting heads in the general ledger of the journal entry system. A journal entry is an original record of the day-to-day transactions, for which the data is used to produce general ledger entries. If you use a double-entry bookkeeping system, you know that every account you debit requires you to credit the corresponding account, and vice versa. But what happens when the transaction affects more than two accounts? A complex compound/combined Journal Entry is a journal entry involving more than 3 Account Heads (elements) in which there are multiple debits and multiple credits. The primary book of account in which financial transactions are first recorded in chronological order, i.e., in the order in which they are entered, is called the journal.

What is the difference between a simple entry and a compound entry?

Investopedia reports that double entry bookkeeping requires that for every debit entered into the records, a corresponding credit is also recorded. For example, if a cash account is credited for ​$1,000​, a second account would be debited for ​$1,000​ so that the two balance out. Suppose a company pays an invoice for a monthly utility service totaling ​$1,000​. The utilities expense as recorded in accounts payable would be debited for ​$1,000​.

There is no standard definition for the term “compound

entry” in the context of accounting or bookkeeping. However, it may refer

to a compound journal entry, which is a type of journal entry that involves

more than one debit or credit account. Compound entry or compound journal entry is the combination of two or more simple entry. However, in compound entry, we make more than one debit, credit or to both. The accounting journal records specific business transactions, regardless of type.

What is a Compound Journal Entry ?

Standard journal entry templates are routinely constructed for compound journal entries, so that they can be consistently generated in each reporting period. Otherwise, there would be a high risk of creating an incorrect entry if it were to be developed “from scratch” each month. Learn more about each of these transactions by taking a look at our compound journal entry examples below. Instead of listing out all the ledger accounts on the debit part of the entry, we write Miscellaneous Assets indicating that there are more than one debits involved in the transaction. Instead of listing out all the ledger accounts on the credit part of the entry, we write Miscellaneous Liabilities indicating that there are more than one credits involved in the transaction.

• Whereas a compound entry involves more than one debit and one credit for a single transaction.
• However, there can be other ways of doing a compound entry as well.
• Most business owners are responsible for collecting sales tax from their customers and remitting it to their state.
• If so, you know that a portion of your loan payments goes toward interest.
• A compound journal entry involves a business event where more than two accounts are changed.

The problem arises from the fact that it would not be possible to attribute each specific debit to a specific credit as in the case of posting a simple compound/combined entry. Journal is a primary book of account which records financial transactions. https://turbo-tax.org/the-difference-between-b-c-forms/ The differences between various Journal entries are discussed below. The amount of debit or credit parts in a transaction is not required to be equal, but their total amount should add up to the total amount of the account being debited or credited.