Compound Journal Entry: Format, Examples & Advantages

A compound journal entry is a type of accounting entry that involves more than two accounts. Sometimes, two or more transactions relating to one particular account take place on the same date. When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry i.e. compound journal entry instead of passing two or more entries.  Such entries can be passed either of the following three ways:

1. By Debiting one account and Crediting two or more accounts.
2. By Crediting one account and Debiting two or more accounts.
3. By Debiting two or more accounts and Crediting two or more accounts.

• Multiple Accounts: Involves more than two accounts.
• Balanced: The total amount of debits must equal the total amount of credits.
• Complex Transactions: Used for recording transactions that impact several accounts at once.

Example 1:

• 01 July 2022: Goods sold for cash 10,000.
• 01 July 2022: Cash received from Shubham 2,000.
• 01 July 2022: Received Rent of 8,000.
• 15 July 2022: Purchased Goods worth 20,000.
• 15 July 2022: Cash paid to Sahil 6,000.
• 15 July 2022: Commission paid of 4,000. 

Solution: 

Example 2: 

• 01 June 2022: Paid Wages 2,000.
• 01 June 2022: Paid Advertisement Expenses 1,000.
• 01 June 2022: Paid Salaries 7,000.
• 10 June 2022: Received Interest 5,000.
• 10 June 2022: Received Commission 3,000.
• 10 June 2022: Received Dividend 2,000.

Solution:

• Combined Transactions: When a single transaction affects multiple accounts.
• Accruals and Prepayments: To record accrued expenses or prepayments that involve various accounts.
• Adjusting Entries: For adjusting entries that correct multiple accounts at the end of an accounting period.
• Complex Purchases: When purchasing multiple items or services that affect different expense accounts.

• Efficiency: Saves time and effort by combining several transactions into one entry.
• Clarity: Provides a clear and concise record of transactions affecting multiple accounts.
• Accuracy: Reduces the risk of errors by consolidating related transactions.