Learn About Contra Entry : Contra Entry Meaning, Definition, And Examples (2023)

On a daily basis, one carries out many transactions termedcontra entryin the books of accounts. For example, let’s say you transferred money from one of your accounts to another bank account belonging to you or withdrew money using the ATM from your account etc. If you have to maintain an account of your money, you would need a contra voucher to record such transactions. So, let’s discover what contra entry and contra voucher means.

Contra Entry meaning

A transaction involving your bank account and cash are generally reflected in the books of accounts. However, when one makes such transactions, it is always for a purpose and has a destination account. When looking at such transactions, the entry appears, which is called a contra voucher. Thus, all transactions involving the bank account and cash are called contra entries. You can further understand the meaning of contra entry by looking at what it comprises of:

  • A transfer of cash from a cash account (a/c) to another cash account:
  • One cash a/c to the bank account;
  • One bank account to a cash account;
  • One bank a/c to another bank a/c.

A question that often leaves people wondering is the definition of movement from one cash account to another cash account? Consider an example. While at work, you order refreshments for the team. This money comes out of an account called the ‘Petty Cash Account’. This account holds a small amount of money for daily small expenses like buying small stationery items, paying for courier charges, ordering refreshments etc.

When such payments are made, you use a contra voucher, apetty cash voucher, to account for the money spent.

When you look at the transaction from an accounting point of view, the cash has moved from the petty cash account to the petty expenses account. So, now you have just discovered what a contra entry means and the meaning of a cash voucher or the need to record the movement of money from one cash account to another cash account using a contra entry.

Also Read:3 Golden Rules of Accounting, Explained with Best Examples

Contra Entry Examples

Let us go ahead and tabulate some daily transactions in a business and try to identify the contra entrieswith a reason as to why they are contra entries based on the above paragraph’s definition. Just as a reminder, a contra entry affects both the bank and cash accounts.

Book Entries

Contra Entry Yes/No

Why?

Transferred Rs 2,500 cash to the petty cash account.

Yes

The transaction affects 2 cash accounts, namely the Petty Cash a/c and Cash a/c.

Made a Cash sale worth Rs 1,750.

No

The transaction affects only one account, namely the Cash a/c.

Paid Mr Raj by cheque Rs 5,750/-.

No

The transaction affects only one account, namely the Cash a/c.

Received cheque from M/s QuickPay Rs 9,500 and deposited the cheque into the bank.

No

The transaction affects only one account, namely the Bank a/c. A cheque received is the same as cash received.

Mr Shyam deposits a cheque for Rs 8000/- to our bank account.

No

The transaction affects only one account, namely the Bank a/c.

Made a cash purchase of stationery worth Rs 1,250/-.

No

The transaction affects only one account, namely the Cash a/c.

Paid rent for March by cheque of Rs 18,500/-.

No

The transaction affects only one account, namely the Cash a/c.

Withdrawn from ATM of office bank account towards petty expenses Rs 5,000/-.

Yes

The transaction affects two accounts, namely the Bank account and Petty Cash a/c.

Made a cash sale worth Rs 6,750/-.

No

The transaction affects only one account, namely the Cash a/c.

Bought office stationery worth Rs 475/-.

No

The transaction affects only one account, namely the Cash a/c.

Made a cash sale worth Rs 3,550/-.

No

The transaction affects only one account, namely the Cash a/c.

Deposited cash of Rs 15,000/- to the official bank account.

Yes

The transaction affects two accounts, namely the Bank account and Cash a/c.

Withdrew cash of Rs 10,500/- for personal use.

No

The transaction affects only one account, namely the Cash a/c.

Paid salaries by cheque of Rs 25,490/-.

No

The transaction affects only one account, namely the Cash a/c.

Format for Double Entry Cash Book

What is contra entryformat? As already seen, when two accounts are affected, you will need to pass two entries, namely from one account to another, in a single entry book. Hence, thedouble entriesmethod is employed wherein the transactions are recorded double lying side by side to avoid confusion. Take a look at the belowcontra entry exampleof a double-entry cash book of M/S Mohan Enterprises to understand its format and the recording of contra entries.

Double column cash book of Mohan Enterprises

(Cashbook with Cash and Bank column) (Dr) (Cr)

Date

Particulars

RN

(Register Number)

L.F

(Ledger Folio)

Cash

Bank

Date

Particulars

RN

L.F

Cash

Bank

09.08

[Cash withdrawn from the bank]

To Bank

C

12,300

-

09.08

By Cash

C

12,300

21.08

[Paid into bank]

To Cash

C

-

15,560

21.08

By Bank

C

15,560

Traditionally,contra entrieshave the two accounts affected, the Cash account and the Bank account. All debit transactions denoted as Dr (debit side) on top will have a destination account referred to as a ‘To …..’ entry while the destination account has a credit or Cr (credit side) on top of the column and have a ‘By……’ entry.

Take the first transaction, which is acontra entry example in Tally.

  • Note that there is a Dr or debit side and a contra-side or Cr Credit side in each contra voucher in Tally. Both sides have the affected two accounts, namely the Cash and Bank account columns. The Dr and Cr may not be required to be denoted since it is understood that the left side is always the debit transaction and has the ‘To’ entries while the right side is always the Cr or Credit side and has the ‘By’ entries.
  • The date column and its format can be entered as just day and month (dd/mm) since each year’s accounts are separately maintained.
  • It says[Cash withdrawn from the bank] To Bank in the particulars column. The brackets and text within are meant to help you understand the transaction better and not be entered this way. The standard entry would just read ‘To Bank’.
  • The RN or register number corresponds to a register maintained and is not required here since it is already defined as the Cash Book and Bank Account Book for a particular year.
  • The LF or Ledger Folio is denoted with a C. C; in this case, it means a contra entry. It is entered on both sides of the contra entry and is typically meant to state that no further LF entry is required since it is a cash entry.
  • Since cash is withdrawn from the bank in this transaction, the cash account is debited for Rs 12,300/-, and the bank account is credited with the same amount of Rs 12,300/- in the respective left and right side columns. A dash or – entry is also made in the empty column to avoid confusion. This rule is followed by meticulous bookkeepers entering contra in Tallyand such account books manually.

Note that both the cash in the Cash a/c and the Bank a/c are now recorded side by side, and the ‘To’ or ‘By’ entries make it easy to read which a/c was debited and to which a/c it was credited when the accounts were prepared. This book then is thecontra entry in cash bookor, simply put, the Contra Book.

The Cash a/c and Bank a/c have columns to register the R-Register, LF or Ledger Folio, Cash and Bank columns, making it easy to mark cash transactions with a C and show whether cash was withdrawn or put into the respective a/c columns. Note that when one account is marked C, meaning Cash, the other receiving a/c is marked with C or contra entry. Another interesting fact to remember is that a cheque is considered cash received and reflected in thecontra entry for bank to bank transfers. In contrast,being denoted as C orcontra entry in Tally,no further entry is required in the respective Ledger Folio.

Also Read:Step-By-Step Guide To Calculate Accounts Receivable Turnover Ratio

Conclusion

Modern-day accounting software like Tally ERP or Tally Prime uses automation technologies to automatically post thepetty cash entry in Tallyin the above format daily. Thus, there is no longer to enter manually such transactions, contra entries etc. laboriously, in the traditional Cash Book format. WithBiz Analyst, now manage your contra entry in Tally easily. This app is for Tally users who want to stay connected to their business and experience business growth, analyse sales and do effective data entry.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected.The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.

Top Articles
Latest Posts
Article information

Author: Manual Maggio

Last Updated: 19/06/2023

Views: 6268

Rating: 4.9 / 5 (49 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Manual Maggio

Birthday: 1998-01-20

Address: 359 Kelvin Stream, Lake Eldonview, MT 33517-1242

Phone: +577037762465

Job: Product Hospitality Supervisor

Hobby: Gardening, Web surfing, Video gaming, Amateur radio, Flag Football, Reading, Table tennis

Introduction: My name is Manual Maggio, I am a thankful, tender, adventurous, delightful, fantastic, proud, graceful person who loves writing and wants to share my knowledge and understanding with you.