Step-by-step guide
How to record contra entries
A contra entry appears on both sides of the cash book when money moves between the business's own cash and bank accounts, so no outside party is involved.
Step by step
- Spot the internal transfer. Identify a movement of money between the business's own cash and bank.
- Enter one side in cash. Record the movement in the cash column on one side of the cash book.
- Enter the other side in bank. Record the matching amount in the bank column on the opposite side.
- Mark it with a contra symbol. Show the letter C in the folio column to signal a contra entry.
- Check no ledger posting is needed. Both entries are in the cash book, so there is nothing to post elsewhere.
Worked example
Paying RM500 of cash into the bank: credit cash RM500 and debit bank RM500 in the cash book.
Understanding the method
Contra means against. In a contra entry, the debit and the credit are both inside the cash book, side by side. The marking C tells a reader that both halves are already recorded and nothing more needs posting.
The usual case is money moving between cash in hand and the bank. Suppose the business takes RM500 from the till and pays it into the bank. Cash in hand falls, so credit the cash column.
The bank balance rises, so debit the bank column. No wealth has entered or left the business. Only its location has changed.
Exam wording varies. Cash paid into the bank and banked the day's takings both mean cash falls and bank rises.
Withdrew cash from the bank for office use means bank falls and cash rises. Money withdrawn from the bank for the owner's private use is drawings, not a contra, because the money leaves the business.
Here is an example. A shop starts with RM800 cash and RM1,200 at the bank. It pays RM600 of cash into the bank, then withdraws RM100 from the bank to keep as a float.
For the RM600: credit the cash column RM600 (cash falls to RM200) and debit the bank column RM600 (bank rises to RM1,800). For the RM100: debit the cash column RM100 and credit the bank column RM100. Mark both with C.
After these movements, cash is RM300 and bank is RM1,700. The total of cash plus bank is still RM2,000, the same as at the start.
That is the check. The total of cash and bank must not change because of a contra.
If it does, you probably entered both halves on the same side, or left one out. Also confirm both entries carry the contra mark.
The word contra is also used when a person is both a customer and a supplier, and the two balances are set off. The contra reduces both balances by the agreed amount: debit the payables account and credit the receivables account. This is recorded through the journal, not the cash book.
Common mistakes: treating a contra as two separate transactions and posting one side to another ledger account, which double-counts the movement. Others are mistaking drawings or wages paid in cash for contras, and putting a contra in the discount columns. No discount arises from moving your own money.
If you are unsure when a cash movement is a contra and when it is not, we can help. One of our teachers can sort a mixed list of transactions with you and explain each decision. Book a trial class
Related skills
The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.
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