Contra Entry : Examples and Types of Contra Entry

Introduction to Contra Entry

Before we define contra entry, let me state that this is something we deal with on a daily basis. Have you withdrawn cash from an ATM?? Have you visited your bank and made a cash deposit into your account? Have you made a money transfer from one bank account to another?

If you made any of the above events, it must be registered as a contra entry. All transactions mentioned above are contra entry.

Contra Entry Definition

Contra entry refers to cash and bank transactions. Any input that affects both cash and bank accounts is known as a counter entry. In Latin, Contra signifies the opposite. It is better known as a counter voucher.

Any transactions involving the transmission of cash from one cash a/c to another or cash a/c to another bank a/c or one bank account to another are termed contra entries in order to simplify the definitions. For instance, a company withdraws cash from the bank account to pay daily costs, and the following entry is recorded: Cash accounts are debited while the bank is credited to the account.

Note that with the result of the above entry the balance sheet is not affected because the cash flow between two asset accounts is different.

Contra Entries can be entered into for following accounts-

• Petty Cash
• Cash on Hand
• Cash at bank

Types of Contra Accounts

Contra accounts can be divided into four categories: contra asset, contra liability, contra equity, and contra revenue.

1. Contra Asset

Contra asset accounts are the most common type. In addition to accumulated depreciation, the contra asset accounts include an allowance for doubtful accounts. Contra asset accounts are created with a credit balance, which reduces the balance of the asset being recorded.

2. Contra Liability 

The discount on notes or bonds due is one of the most frequent kinds of contra obligations. Contra obligations have a negative balance. Contra liability accounts are not as common as they used to be, unlike contra asset accounts.

An obligation represented as a debit balance can be used to decrease the amount of another liability. The contra accounts balance is equal to the amount of money owing to the account. Contra-responsibility accounts are not utilized as often as the comprehensible counter-asset accounts. Since it is not a future obligation, it is not categorized as an accounting liability.

3. Contra Equity

The third kind of counter type is Contra equity. These contras decrease the amount of the equity account and leave a debit account balance. When a business utilizes contra equity, its total balance sheet share is decreased. Contra equity accounts are usually the treasury stock, which accounts for the amount of money spent for stock buying.

4. Contra Revenue

Sales discounts, sales allowances, and sales returns are all available for accounts that generate contra revenue. As a result of the contra revenue, gross revenue decreased, resulting in net revenue. These counter-revenue accounts are more likely to have a negative balance.

Examples of contra entry

Some examples of contra entry can be seen below.

• Small cash transferred cash — INR 2,500 is a counter entry because it impacts accounts, cash, and a small cash account

• Cash taken from a bank to be used for office – INR 2 500 is a counter entry because the transaction affects both cash and bank accounts.

• The INR 12,000 bank account is a counter entry because it covers two accounts, cash, and the bank account.

Additional examples that are not contra entries are as follows:

• Cheques received from Mr. A 6,000 and paid to the bank – this is no contra entry because only the banking account and not the cash account is affected here.

• Bought INR 2500 paper – this isn’t also a contra item, since only the cash account is affected.

• Payment of rent by INR 2000 cheque – not a counter-account because the transaction only affects a cash account.

When you compare the example for contract entries and non-contra entries, you will have a clearly defined notion of how to create a contra entry and when to record a contra entry.

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Some  more examples of contra entry

• Cash transferred to petty cash INR2500 Transaction

Is it a contra entry– yes

Reasoning – Two accounts affected – the cash and petty cash accounts

• Cash sales- Transaction INR1750

Is this a contra entry– No

Reasoning – Only one account is affected – cash.

• Payment by check INR3750 to Mr.Yash

Is it a contra entry– No

Reasoning– Only one account is affected – cash.

• Transaction – A cheque has been paid to the bank by M/s Zain and Bros., INR4,500

Is it a contra entry– No

Reasoning– Check received equals cash. Check received Only one account is affected – bank account

• Transaction- Mr. Alex INR6,000 received cheque paid to the bank

Is this a contra entry– No

Reasoning – The received check corresponds to the cash received. Only one account is affected – Bank account

• Purchases of INR2,500 Cash Transaction

Is this a contra entry– No

Reasoning- Only one account affects – cash.

• Transaction- INR10,000 deposited in the bank account transaction

Is it a contra entry– Yes

Reasoning – Two accounts – Cash and bank account are affected

• Transaction – Cash for personal use withdrawal INR1,000

Is this a contra entry– No

Reasoning– Only one cash account is affected

• Transaction- Check payments INR9000

Is this a contra entry– No

Reasoning – Only one account is affected – cash account

How to enter contra entry?

It is necessary to prepare a cash book with two columns, one for cash and the other for the bank, if the contra entries are recorded manually. A transaction’s financial and legal aspects must both be recorded in the same book, referred to as the Contra Book.

Now, you must add the counter entry number – to Cash a/c, which should be inserted on the debit side of the contra book on the credit side under the specific column. Amounts are then put into the column of the bank.

The credit side of the book needs you to enter – by bank a/c in the information field of the creditor. This is put in the cash column. a.

All of the contra entries are referenced in the L.F. column on both sides of the cash book by the letter C. The accounting software is now extensively utilized by companies to increase the efficiency and precision of their operations.

The transactions are automatically posted into the appropriate ledger if accounting software such as myBillBook is used to record the transactions.

If you wish to record a contra entry in your accounting software, you must first record a payment against both the sales and the buy invoices in the program.

Similarly, if there is no money present but an exchange happens on the contra entry, the current account should not be identical to the prior account.

To ensure that the two invoices are balanced, it is recommended that each invoice be credited to a separate bank account.

Also Read :

Accounting : Main Objectives For Accounting

Trading Account : Format for Trading Account

Sundry Creditors and Sundry Debtors Meaning with Example

Petty Cash Book : Definition, Types, Format, Example

Contra Entry Frequently Asked Questions (FAQs).