Contra Entries SS1 Book Keeping Lesson Note

CONTRA ENTRIES 

Sometimes surplus cash is paid into the bank, or money may be withdrawn from the bank to the office. Such transactions are known contra entries because they appear on both sides of the Cash Book.

A contra entry occurs when the double entry records of a transaction occur in the same ledger. 

To record cash removed from the office and paid into the bank:

Debit Bank Account 

Credit Cash Account 

To record cash withdrawn from the bank for office use: 

Debit Cash Account

Credit Bank Account 

In each case, the letter “c” is usually entered in the folio column of the cash book to indicate that the double entry is on the opposite side of the same book. 

The balance on the cash column will always be brought down as a debit balance at the start of the next month. The only exception to this is when there is no cash left in the cash account in which case the balance will be nil. 

 It is not possible to have a credit balance on a Cash Account. 

The bank may however allow the business to have a bank overdraft. This means that the bank allows the business to pay out more from its bank account than the money they have deposited with the bank. The bank will charge interest on the amount overdrawn. 

 In the Cash Book, the bank account (i.e. bank column) is balanced in the usual way and the balance will be brought down on the credit side. This represents the amount the business owes the bank and is a liability.