Compound entries, also known as compound journal entries, are journal entries that involve more than two accounts. They are used to record transactions that have multiple effects on the financial statements.
For example, consider a company that purchases inventory on credit from a supplier. The purchase of inventory will increase the inventory asset account and the accounts payable liability account. To record this transaction, a compound entry would be made that includes both a debit to the inventory asset account and a credit to the accounts payable liability account.
Here is an example of a compound entry:
Debit Credit
Inventory $10,000
Accounts Payable $10,000
This entry records the purchase of inventory on credit from a supplier. The inventory asset account is increased by $10,000, and the accounts payable liability account is also increased by $10,000.
Compound entries are used to record a variety of transactions, including the purchase of fixed assets, the sale of goods or services on credit, and the payment of expenses. They are an important part of the accounting process and are used to ensure the accuracy and completeness of financial statements.
It’s important to note that compound entries are different from complex entries, which are journal entries that involve three or more accounts and require the use of a T-account analysis to determine the appropriate debits and credits.