Simple Compound/Combined Journal Entry
Simple Journal Entry
A journal entry involving only 2 Account Heads (elements) is called a simple journal entry. One of the elements/accounting heads is debited and the other credited.
Most of the journal entries that we come across in the initial stages of learning accounting are simple journal entries only.
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Furniture a/c To Cash a/c | Dr | 15,000 | 15,000 |
[Being the amount paid in cash towards purchase of Furniture.] |
Compound/Combined Journal Entry
A journal entry involving more than 2 Account Heads (Elements) is called a compound/combined journal entry.
There are two kinds of compound/combined journal entries
Simple
A simple compound/combined Journal Entry is a journal entry involving 3 or more Account Heads in which there are either multiple debits or multiple credits and not both.
Journal in the books of __ for the period from __ to __ Particulars Amount
(Dr)Amount
(Cr)Rent Paid a/c
Telephone Charges a/cTo Cash a/cDr
Dr8,000
1,280
9,280Complex
A complex compound/combined Journal Entry is a journal entry involving more than 3 Account Heads (elements) in which there are multiple debits and multiple credits.
Journal in the books of __ for the period from __ to __ Particulars Amount
(Dr)Amount
(Cr)Cash a/c
Motor Car a/c
Furniture a/cTo Furniture a/c
To Capital a/cDr
Dr
Dr50,000
1,00,000
20,000
50,000
1,20,000
Simple Compound/Combined Journal Entry
A simple compound/combined Journal Entry is a journal entry involving 3 or more Account Heads in which there are either multiple debits or multiple credits and not both.
Illustrative Explanation
Consider the following transactions
- Paid Rent in Cash 8,000
- Paid Telephone Charges in Cash 1,280
Recording using Simple Journal Entries
These transactions can be recorded using simple journal entries as:
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Rent Paid a/c To Cash a/c | Dr | 8,000 | 8,000 |
[Being the amount paid towards rent in cash.] | |||
Telephone Charges a/c To Cash a/c | Dr | 1,280 | 1,280 |
[Being the amount paid towards telephone charges in cash.] |
Combining the two Journal entries
Since in both the entries the ledger account cash is affected, we can combine the two entries into one.
In combining the above two entries we interpret the transaction as
Paid Cash 9,280 towards Rent 8,000 and Telephone Charges 1,280
Recording using Simple Compound/Combined Journal Entry
The same transactions can also be recorded using simple compound/combined journal entry as:
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Rent Paid a/c Telephone Charges a/c To Cash a/c | Dr Dr | 8,000 1,280 | 9,280 |
[Being the amount paid towards rent and telephone charges in cash] |
Isn't it a violation of the dual entity concept?
The simple compound/combined entries should not be interpreted to mean that more than 2 elements are effected in a single/simple accounting transaction.
A simple compound/combined entry is a journal entry derived by combining two or more simple journal entries. The simple compound/combined entry can always be broken down into the constituent simple journal entries.
Posting the Compound/Combined Entry
Posting the compound/combined entry into the ledger can be viewed as posting the two or more simple entries that form the compound/combined entry.
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Rent Paid a/c Telephone Charges a/c To Cash a/c | Dr Dr | 8,000 1,280 | 9,280 |
[Being the amount paid towards rent and telephone charges in cash] |
The postings relating to the above entry, in the relevant accounts, would be as follows.
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
To Cash a/c | 8,000 |
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
To Cash a/c | 1,280 |
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
By Rent Paid a/c By Telephone Charges a/c | 8,000 1,280 |
Compound/Combined Entries make tasks simpler !!
Apart from reducing the work involved in writing the Journal Entries, Compound/Combined entries sometimes give a better understanding of the transactions compared to recording the entries separately by ensuring that all the related information is placed together.
Illustrative Explanation
Having purchased goods on credit, the organisation is due to Mr. Mahender to the extent of 5,000. Credit period allowed is 2 months, and the due date of payment is a month away.
Mr. Mahender in need of cash asks the organisation if they would be able to pay up in advance. To motivate them into paying in advance he offered them a discount of 200 on the amount due. The organisation took up the offer and paid up in cash 4,800.
There are two transactions involved here.
- Paying 4,800 cash to Mr. Mahender
- Receiving a discount of 200 from Mr. Mahender.
Recording using Simple Entries
The two transactions can be considered separately and recorded using two simple journal entries
- Paid Cash to Mr. Mahender on account 4,800.
- Received discount from Mr. Mahender 200
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Mr. Mahender a/c To Cash a/c | Dr | 4,800 | 4,800 |
[Being the amount paid in cash to Mr. Mahender on account] | |||
Mr. Mahender a/c To Discount Received a/c | Dr | 200 | 200 |
[Being the amount of discount received from Mr. Mahender] |
Recording using Simple Compound/Combined Entries
The two transactions can be combined and recorded using a simple compound/combined journal entry
- Paid to Mr. Mahender 4,800 in full and final settlement of the amount due to him of 5,000 or
- Paid 4,800 to Mr. Mahender and discount received from him 200.
Since the two transactions are related and happen together, it would be convenient combining the two and interpreting them as a single transaction, both for the purpose of understanding as well as for recording.
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Mr. Mahender a/c To Cash a/c To Discount Received a/c | Dr | 5,000 | 4,800 200 |
[Being the amount paid to Mr. Mahender in cash and the discount received from him on account] |
Ledger Postings
The postings would be the same irrespective of whether the recording has been done using a simple journal entry or a simple compound/complex journal entry.
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
To Cash a/c To Discount Received a/c | 4,800 200 |
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
By Mahender a/c | 4,800 |
Dr Cr | |||
---|---|---|---|
Particulars | Amount | Particulars | Amount |
By Mahender a/c | 200 |