A compound journal entry is a journal entry that affects more than two accounts. It is used to record complex transactions that involve multiple debits and credits in a single entry, ensuring that the accounting equation remains balanced. Here’s a detailed explanation along with an example:
Explanation
In accounting, each transaction must have at least one debit and one credit entry. However, some transactions involve multiple accounts. A compound journal entry allows for the recording of such transactions efficiently.
Benefits of a Compound Journal Entry:
- Efficiency: Allows multiple related transactions to be recorded in one entry, saving time.
- Clarity: Provides a comprehensive view of the transaction, showing all affected accounts in a single entry.
- Accuracy: Reduces the likelihood of errors that might occur if the transaction were split into multiple simple entries.