Bookkeeping – Complex Entries (Lesson 15)

Lesson 15

Many bookkeepers are initially misinformed about the dual entry accounting system. They think that based on the wording that accounting entries have only two lines of information, one line for a debit and a second line for a credit. What the words dual entry mean is that debits must equal credits. Therefore either or both values can have multiple lines of data. If multiple lines of three or more, the entry is called a complex entry.

This lesson is designed to illustrate this concept. Keep in mind that at the end of the entry all debits must equal credits.

The first illustration is a simple purchase of materials with a discount from the supplier, i.e. cash is paid. The entry is recorded in the purchases journal as follows:

                        PURCHASES JOURNAL
Date       Ledger                Description                    DR              CR
09/05/15  COS-Materials   Lumber – Smith Job      $100.00
–             Discounts           Lumber – Smith                                 2.00
–             Cash Payment     Lumber – Smith                               98.00
–                                                                           $100.00    $100.00

Notice both debits and credits are equal. This is an example (simple example) of a complex entry.

Now let’s take a look at an entry where both debits and credits have multiple lines of data. In this example the company purchases two pieces of equipment from the same company and paid some cash and used a long-term loan for the balance:

                    FIXED ASSETS JOURNAL
Date         Ledger            Description                       DR          CR
09/08/15   F/A – Equip    Front End Loader               43,000
–              F/A Trans       Loader Trailer 2T-4000        6,500
–              Cash               Partial Payment                                15,000
–              LT  Debt         Bal. of Payment 5/YR Note               34,500
–                                                                            $49,500   $49,500

Again notice both debits and credits are equal? Also both debits and credits have multiple lines of information and that the respective ledgers are different.

Now let’s complicate this some more and illustrate a highly complex entry with multiple lines of both sides with multiple ledgers (accounts) and some of the ledgers are the same. Here is an example of a payroll entry:                                                                                                          

    PAYROLL JOURNAL
Date          Ledger                Description                  DR           CR
09/10/15    COS – Labor       Joe Smith 10 Hrs       100.00
–               P/R Tax Expense  SS Match JS                 6.20
–               P/R Tax Expense  Medi Match JS             1.45
–               P/R Tax Expense   FUTA/SUTA               1.10
–               P/R Tax Liability   Fed Withholding JS                      7.00
–               P/R Tax Liability   SS W/H JS                                   6.20
–               P/R Tax Liability   Medicare W/H JS                         1.45
–               P/R Tax Liability   State Income Taxes JS                  3.00
–               P/R Tax Liabili      SS Match JS                                 6.20
–               P/R Tax Liability   Medicare Match JS                       1.45
–               P/R Tax Liability   FUTA/SUTA Due JS                     1.10
–               Cash – Payroll Acct Net Check #3108 JS                   82.35
–                                                                             $108.75   $108.75

As stated before, both sides (debits and credits) are equal. Notice there are three payroll tax expense lines and seven payroll tax liability lines? This is done to keep the respective lines separated as each line is a function of a different tax.

With bookkeeping the payroll entry is usually the most complicated entry. It is rare to have a more complicated entry in a small business set of books.

This lesson teaches you that the dual entry system means that debits equal credits and the journal entry may have more than two lines of information. Multiple lines of entry even multiple lines for the same ledger account refers to a complex entry. ACT ON KNOWLEDGE.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you.   If interested in my help as an accountant or consultant, contact me through the ‘My Services’ page in the footer.

If you found this article helpful, please consider a donation to the site.  The donation button is just to the right.  Even if you don’t make a contribution, I encourage you to read more articles on the website to help you become a better business entrepreneur.

About David J Hoare 427 Articles
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns