Normally, we hear word like Contra Account. So what is it?
In bookkeeping, when a customer of a company is also a supplier, he or she may be a debtor as well as a creditor of the company.
Instead of physically making payment vide cheque/draft or cash, his accounts by mutual consent can be settled by setting off the amount owing by him to the company and amount due by the company to him. The contra or setting off needs to be reflected in the Total or Control Account to ensure the Control accounts for both debtors and creditors balances with the sum of all the individual debtors and creditors account.
Accounting Treatment of Contra entries
Assuming Mr A is our debtor and he owed the company for $4,000 being goods supplied by the company to him.
However, the company also purchase goods from Mr A where the company now owed him for $5,000
How to do effect the contra entries:
We transfer $4,000 by debiting Mr. A’s account in the Purchase ledger and crediting Mr. A in the Sales Ledger.
The transfer will then appear on the debit side of the Purchase ledger Control Account and on the credit side of the Sales Ledger Control Account.
Debit: Mr. A ( Purchase Ledger a/c) $4,000
Credit: Mr. A ( Sales Ledger a/c ) $4,000
( The above is also being transferred to the respective control account)
Being offset of account
- Details Of Ninth Schedule Companies Act 1965(Act No 125)
- Section 169 Companies Act 1965-Profit & Loss Account, Balance Sheet & Directors' Report
- GCE “O” Level Principles Of Accounts ( Singapore )
- Explain what is the Chart Of Accounts and give examples of a simple and complex chart of accounts
- Total Debtor Accounts Versus Individual Ledgers