A compound entry is one that includes two or more simple accounting journal entries and has an impact of more than two account heads. A compound entry records two or more credits or debits in any combination.
Compound journal entries are often used to prevent confusion in tracking accounting processes, as they allow for efficient recording of a particular accounting activity. These type of accounting entries are very useful for businesses, as they group related transactions to avoid the potential for inaccurate recording of separate entries. For example, if a company makes a sizable equipment purchase that requires a bank loan, the purchase and the loan are recorded in a compound entry for easy organization.