Simple and compound journal entry

By: Rashid Javed | Updated on: March 25th, 2023

All transactions in a business are first recorded in the form of journal entries. A journal entry can be a simple or a compound journal entry. This categorization is based on the number of accounts an entry comprizes of. Let’s explain and exemplify both types of accounting entries in this article.

Simple journal entry

A simple journal entry comprises of only two account heads – one account is debited and the other credited. In other words, each of the debit and credit parts of the simple entry contains only one account.

A simple entry is the best reflection of underlying transaction and the rules of debit and credit working behind the entry. Since no complexity is involved, simple journal entries are easy to understand and maintain by students, bookkeepers and accountants, even with little to average knowledge of bookkeeping and accountancy.

The frequently occurring daily transactions in a business like sales, purchases, payments for utility bills and customers’ refunds etc. are generally recorded through simple entries. Let’s take a few examples to illustrate the format and recording of a simple journal entry.

Examples of simple journal entries:

Mr. Danial started a trading business, namely Danial Traders, on January 01, 2023. It engaged in the following transactions for the first month of operations:

  • Jan. 01: Mr. Danial invested $25,650 cash.
  • Jan. 03: Purchased merchandise from Moon Bro. for $15,550 cash.
  • Jan. 05: Paid $72 cash to FM-92 Radio and $28 to Local News Paper for advertisement.
  • Jan. 15: Sold goods to Mr. Chopra for $7,540 cash
  • Jan. 25: Sold goods to Mr. Brain amounting to $2,850 on credit.
  • Jan. 31: Paid electricity bill for the month $48.

The simple journal entries to record above transactions in the books of Danial Traders can be made as follows:

Simple journal entry example

Compound journal entry

An accounting entry which comprises of three or more account names is known as compound journal entry. In other words, one of the debit or credit parts of compound entry essentially contains two accounts. A compound journal entry, in fact, is a combination of two or more simple journal entries.

When an accounting event involves more than one journal entries, accountants and bookkeepers find it handy and convenient to merge them all to pass a single compound journal entry. This practice saves time by recording all debits and credits related to a single event at one place in the journal.

Examples of compound journal entry

Let’s take a couple of examples to illustrate how more than one simple entries can be merged to record only one compound journal entry.

Example 1

Albert Company gets a short-term loan of $50,000 from National Bank @ 10% interest on January 1, 2022. The loan would be repaid along with interest on December 31, 2022.

To record the repayment of loan along with interest, the company can pass either two separate simple journal entries (one for the principle amount and one for the interest) or a single compound journal entry.

If two separate simple entries are recorded:

(i). For repayment of principle:

Payment of loan entry

(ii). For repayment of interest:

Payment of interest entry

10% interest for one year: $50,000 x 0.1 = $5,000

If only one compound journal entry is recorded:

Compound journal entry example

Example 2

On December 25, 2022, Abraham Inc. pays $9,900 and receives a discount of $100 to settle an account of $10,000 for a previous credit purchase.

This event also involves two accounting entries – one for the payment of cash for a previous credit purchase and one for receiving cash discount. This event can be journalized by making two separate simple entries or one compound journal entry.

If two separate simple entries are recorded:

(i). For recording cash payment to vendor:

Payment of accounts payable

(ii). For recording cash discount received:

Entry for discount received

If only one compound journal entry is recorded:

Compound journal entry example

There are only three accounts involved in compound entries passed in above two examples. Some accounting entries are more complex and may contain dozens of account heads. An example of such entries is the journal entry for recording employees’ payroll.

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One Comment on Simple and compound journal entry
  1. Koi Ludwick

    Thanks..much helpful💯🙏

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