Have you ever withdrawn cash from an ATM or transferred funds between your two accounts? Then you have done a contra entry here. Contra entries are everyday business transactions that include a transaction between accounts in the same organization. It includes both cash and bank transfer. Let’s discuss more about contra entries, their types, and examples in detail in this article.
What is a Contra Entry?
Contra entries can be defined as a journal entry that records the transactions occurring between cash and bank accounts within the same business. It got this name because the term “contra” indicates “opposite,” as they affect both the bank and cash accounts, which are found on opposite sides of the cash book. The most interesting fact is that when cash is deposited into the bank, the Bank column is debited and the Cash column is credited; similarly, when cash is withdrawn from the bank for office use, Cash is debited, and Bank is credited.
Types of Contra Entries
Now you have understood about what is a contra entry. Next, we are going to discuss various contra entries that we are seeing in our daily lives.
Cash to Bank
When cash available in the office is deposited into the same company’s bank account. What happens there? Obviously, the amount of cash reduces, and that company’s bank balance increases. The only change that happened here is that money changes its form of cash into another. So this can be treated as a contra entry.
Bank to Cash
When a company withdraws money from the bank, the amount of cash increases, and the bank balance goes down. There is no outside party involved. The simple thing that occurred here is that funds have converted to cash, so this transaction is recorded as a contra entry.
Bank to Bank
Sometimes, funds can be transferred from one company bank account to another within the same company. One bank account balance decreases while the other increases. Since both accounts are of the same company, this internal transfer can be considered as a contra entry.
Cash to Cash
When money is moved from the main cash balance to petty cash for small day-to-day expenses, it is only an internal cash adjustment. The total cash is the same. So this movement is recorded as a contra entry.
To understand these types of contra entries better and see how they work in real business situations, accounting courses can help connect the concept with practical examples.
Contra Entry Examples
| Transaction | Is it a contra entry? | Reason |
| ₹30,000 transferred from main cash to branch cash | Yes | Both accounts are cash accounts within the business, so it is an internal transfer |
| ₹8,000 withdrawn from the company bank for office refreshments | Yes | It involves movement between a bank account and a cash account |
| ₹20,000 deposited into the company bank from the office cash | Yes | Cash and bank accounts are affected on opposite sides |
| ₹3,500 received as cash from a customer for goods sold | No | It affects the cash account and sales account, not two cash/bank accounts |
| ₹12,000 paid to the supplier through a cheque | No | Bank account and creditor account are involved |
| ₹6,000 received from customer via cheque | No | Bank account and debtor account are involved |
| ₹2,200 paid in cash for stationery | No | Cash account and expense account are affected |
| ₹25,000 salary paid to staff through bank transfer | No | Bank account and salary expense account are involved |
Advantages and Disadvantages of Contra Entry
You now have a clear understanding of what is a contra entry in real accounting practice. Let’s discuss the advantages and disadvantages of contra entries.
Advantages
Some of the major advantages of contra entries are listed below:
- Keeps internal transfers clear and easy to track
- Helps with smooth bank reconciliation
- Avoids duplicate recording of the same money
- Does not affect the overall financial position
- Saves time in routine bookkeeping
Disadvantages
Some of the major disadvantages of contra entries are listed below:
- It can complicate records when there are many transactions
- May cause confusion if details are not recorded properly
- Errors can make reconciliation difficult
- Needs careful checking and good documentation
Conclusion
Contra entries are an important part of accounting. You should understand that contra entries help track money moving within the business, such as between cash and bank accounts, without affecting the overall financial position. By keeping these entries organized, the businesses can easily reconcile accounts. They can maintain internal checks and prepare for audits without pressure. Using Tally Prime can further streamline this process, enabling accountants to record contra entries more efficiently and accurately.
FAQs
1. What is a contra entry?
It is a transaction that moves money between cash and bank accounts inside the business. Total money does not change.
2. Where is it recorded?
In the cash book, on both debit and credit sides.
3. How is it marked in the cash book?
Often with a “C” in the particulars column to show it’s a contra entry.
4. Is every cash-bank transaction a contra entry?
No. Only internal transfers count. Payments to others or receipts from customers are not contra entries.
5. Can moving money to petty cash be a contra entry?
Yes. Moving cash from the main cash to petty cash is an internal transfer, so it’s a contra entry.
