Learn About Contra Entry: Definition, Examples and Format

On a daily basis, one carries out many transactions termed contra entry in 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 an d 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, a petty 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 entries with 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. 

Format for Double Entry Cash Book

What is contra entry format? 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, the double entries method is employed wherein the transactions are recorded double lying side by side to avoid confusion. Take a look at the below contra entry example of 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)

Traditionally, contra entries have 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 a contra 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 Tally and 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 the contra entry in cash book or, 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 the contra entry for bank to bank transfers. In contrast, being denoted as C or contra 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 the petty cash entry in Tally in the above format daily. Thus, there is no longer to enter manually such transactions, contra entries etc. laboriously, in the traditional Cash Book format. With Biz 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.