Contra entry refers to transaction which affects both Cash and Bank simultaneously, i.e. where debit and credit are Cash or Bank A/c. The word “contra” means “Opposite” which is a Latin word.
The voucher which records contra entry is called “Contra Voucher.”
In other words, when the two accounts involved in a transaction are cash account and bank account, then both the aspect are entered in cash book itself. As both the debit and credit aspect of a transaction are recorded in the cash book, such entries are called contra entries.
ACCOUNTING TREATMENT FOR CONTRA ENTRIES
A Contra entry is required only in the following two transactions :-
- Cash withdrawn from the Bank.
- Cash deposited to Bank a/c.
Contra entries are marked with letter ‘C’ in the Ledger Folio Column. Such entries are not posted in the Ledger as both accounts (i.e., Cash Account and Bank Account) involved appear in the cash book.
Example of Contra Entry :-
Cash deposited into the bank Rs. 30,000. Here, Bank Account is to be debited and Cash Account is to be credited. Debit aspect is to be recorded in the debit side of the Three column Cash-Book (bank column) and credit aspect is to be recorded in the credit side (cash column).
Cash withdrawn from Bank for office use Rs. 30,000 . Here, Cash Account is to be debited and Bank Account is to be Credited. Debit aspect is to be recorded in the debit side of the three column Cash Book (bank column) and credit aspect is to be recorded in the credit side (bank column).
In the above two cases Cash should be treated as contra of Bank and Bank should be treated as contra of Cash.
Contra entry has no ultimate affect in the business. When a contra entry is made, the affect is transferred from one account to another. But no result is created in the business.
For example when cash is deposited to bank, It is just moving of fund (current asset) from cash account to bank account.
Thus, in simple words contra entry is Bookkeeping entry that is entered on the opposite side of an earlier entry to cancel its effect on the account balance.