Compound journal entry definition
/What is a Compound Journal Entry?
A compound journal entry is an accounting entry in which there is more than one debit, more than one credit, or more than one of both debits and credits. It is essentially a combination of several simple journal entries; they are combined for either of the following reasons.
Bookkeeping Efficiency
It is more efficient from a bookkeeping perspective to aggregate the underlying business transactions into a single entry. Examples of aggregation that may involve compound journal entries are:
Depreciation for multiple classes of fixed assets
Accruals for multiple supplier deliveries at month-end for which no invoices have yet been received
Accruals for the unpaid wages of multiple employees at month-end
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Single Accounting Event
All of the debits and credits relate to a single accounting event. Examples of accounting events that frequently involve compound journal entries are:
Record all payments and deductions related to a payroll
Record the account receivable and sales taxes related to a customer invoice
Record multiple line items in a supplier invoice that relate to different expenses
Record all bank deductions related to a bank reconciliation
Example of a Compound Entry
An example of a compound journal entry is a payroll entry, where there is a debit to salaries expense, another debit to payroll taxes expense, and credits to cash and a variety of deduction accounts. A sample entry appears next.
Compound Journal Entry Templates
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.
Compound Journal Entry Documentation
It can be difficult to understand the reason for a compound journal entry after the fact, so be sure to document each one as thoroughly as possible, and attach the documentation to a copy of the journal entry.
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