Compound entry

Definition

A compound entry is a journal entry that involves more than two accounts. It combines multiple debits and/or credits in a single transaction to reflect the complexity of the financial event.

5 Must Know Facts For Your Next Test

1. Compound entries are used when a single transaction affects multiple accounts.
2. They help simplify complex transactions by recording them in one comprehensive journal entry.
3. Each compound entry must still maintain the fundamental principle of double-entry bookkeeping, where total debits equal total credits.
4. Common scenarios for compound entries include payroll transactions, asset purchases involving cash and financing, and adjusting entries like depreciation.
5. Properly identifying all affected accounts is critical to accurately record a compound entry.

Review Questions

Related terms

Simple Entry: A journal entry that involves only one debit and one credit account.

Double-Entry Bookkeeping:

An accounting system where every transaction affects at least two accounts, with debits equaling credits.

T-Account: A visual representation of an account that helps in understanding the effects of debits and credits on each account.