Contra entry example

Contra Entry :- If a transaction requires entries on both the debit and the credit sides simultaneously, it is called 'Contra entry'.

Example:- When the cheques previously received are deposited now in the bank, They should be recorded in the bank column on the debit side and the cash column on the credit sided of the cash book. Contra entries do not have ledger folio. To indicate that it is a contra entry, the alphabet 'C' is mentioned in the ledger folio column on both the debit and the credit sides. 'C' means contra entry.

Note :-  If cash is withdrawn from the bank for the proprietors personal use, then it is not a contra entry.

Usually, the contra entries will appear in the following occasions.

a. When an account is opened with a bank.
b. The firm's cash is deposited in the bank.
c. The cash is withdrawn from bank for office use.
d. The cheques received from debtors, are deposited in the bank.

In transactions a&b, the cash balance available with the firm is decreased, the cash in bank is increased. In transaction 'c', the cash in the bank is decreased and the cash in the firm is increased.

Note: 1.When cheque received from a debtor is deposited in the bank on the same day, the entry will be as under:

Bank A/c              Dr.

    To Debtors A/c

(Being the cheques received from the debtor is treated as cash)

2. When the cheque received from a debtor is not deposited into bank on the same day, two entries are recorded.

a. When the cheque is received :

Cash A/c              Dr.

    To Debtor A/c

(Being the cheque received from the debtor is treated as cash)

b. When the cheques are sent to the bank next day for collection.

Bank A/c              Dr.

    To Cash A/c

(Being the cheque deposited in the bank)

The above entry 2(b) is called a contra entry.