What's a Compound Entry in Accounting?
When logging a business transaction that affects several accounts, a compound entry is recorded in your accounting journal. The entry may be a combination of several debits and credits, but as per the double entry system in accounting, the sum of all entered debits and the sum of all entered credits will be equal.
The accounting journal records specific business transactions, regardless of type. Each entry gives the date, an explanation and balanced debits and credits. A business may use special journals for regular transactions and a general journal for irregular transactions.
The general ledger contains balances of each individual account (Cash, Accounts Payable, Cost of Goods Sold -- or COGS, etc.), called T-accounts. The general ledger is updated periodically by hand, or automatically by software each time an entry is made into the accounting journal.
In accounting terminology, debits and credits differ from those definitions used for personal banking. A debit is recorded when, for example, assets -- such as equipment or inventory -- increase in value. A credit is recorded when a liability -- such as rent, wages or interest expense -- increase in value. A credit to an asset account, or a debit to a liability account, will incur the opposite: the value will decrease.
A simple journal entry has a debit and credit of equal value. For example, a $12,000 business vehicle purchased with cash is recorded as a $12,000 debit to equipment and a $12,000 credit to cash. A compound journal entry has multiple debits, multiple credits or both debits and credits. Using the same example, a business vehicle purchased for $12,000 with $2,000 down and the remainder financed is recorded as a $12,000 debit to equipment, a $2,000 credit to cash and a $10,000 credit to loans payable.