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 these reasons:
- 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
- All of the debits and credits relate to a single accounting event. Examples of accounting events that frequently involve compound journal entries are:
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.
Standard journal entry templates are routinely constructed for compound journal entries, so that they can be consistently generated in each reporting period.
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.