Contra Entry in Accounting: Meaning, Format, Examples and Uses
Quick Summary
- A contra entry records the movement of money within the business, usually between cash and bank accounts.
- It is used when cash is deposited into a bank, cash is withdrawn from a bank, money is transferred between two business bank accounts, or petty cash is topped up from cash or bank.
- The most important rule is that a contra entry must not involve an external party. If the transaction involves a customer, supplier, employee, lender, or expense, it is not a contra entry.
- Contra entries do not affect profit and loss because they do not create income or expense. They also do not create GST liability because there is no supply of goods or services.
- In a manual cash book, contra entries are usually marked with “C” in the Ledger Folio column. In BUSY, they are recorded through the Contra Voucher.
What is a Contra Entry?
A contra entry is an internal accounting entry used to record the movement of money between a business’s own cash and bank accounts, or between two bank accounts owned by the same business. It does not involve an outside party such as a customer, supplier, employee, or lender. The money only moves from one internal account to another.
For example, if a business deposits ₹10,000 cash into its bank account, the bank balance increases and the cash balance decreases by the same amount. The accounting entry will be:
Bank A/c Dr ₹10,000
To Cash A/c ₹10,000
In a manual double-column or triple-column cash book, contra entries are recorded on both sides of the cash book and marked with “C” in the Ledger Folio column. This shows that no separate ledger posting is required. In accounting software, contra entries are usually recorded through a Contra Voucher.
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Advantages of Contra Entry
- Clear Cash and Bank Tracking: Contra entries help a business clearly track how much money is available in hand and how much is available in the bank. This is useful when cash is deposited, withdrawn, or transferred between bank accounts.
- Better Reconciliation: When internal fund movements are recorded properly, bank reconciliation becomes easier. The accountant can quickly identify whether a transaction is an actual receipt, payment, or only a transfer between cash and bank.
- Reduced Misclassification: A separate contra voucher reduces the chance of recording internal transfers as sales, income, purchases, or expenses. This keeps the books cleaner and prevents wrong reporting of business transactions.
- Cleaner Audit Trail: A properly dated contra entry with a clear narration helps auditors understand why money moved from one account to another. It also makes it easier to verify cash deposits, withdrawals, and bank transfers during review.
- No Impact on Profit: Contra entries do not affect profit or loss because they do not record income or expenses. They only show movement of money within the business, such as from cash to bank or from one bank account to another.
Limitations of Contra Entry
- It Can Be Misused: A contra entry should be used only for internal fund transfers. If a loan receipt, customer payment, or supplier payment is wrongly recorded as contra, the financial statements may show incorrect balances.
- It Requires Correct Account Selection: Businesses with multiple bank accounts need to select the correct cash and bank ledgers while recording contra entries. A small selection error can create confusion during bank reconciliation.
- It Does Not Explain Business Performance: Contra entries only show movement of money within the business. They do not explain sales, expenses, margins, profitability, or the actual operating performance of the business.
- Petty Cash Treatment May Vary: Petty cash may be treated differently depending on how the account is created in the accounting system . In some cases, petty cash may be handled as a cash ledger, while in others, businesses may use a separate expense or imprest process.
When is Contra Entry Used?
A contra entry is used when money moves internally between cash and bank accounts of the same business. It is common in businesses that handle daily cash sales, multiple bank accounts, branch deposits, withdrawals, or petty cash. 4 most common types of contra entries are :
1. Cash Deposited into Bank: When cash available in hand is deposited into the business bank account, it is recorded as a contra entry. For example, A retailer deposits ₹25,000 cash from daily sales into HDFC Bank. Here, cash in hand decreases and bank balance increases.
Entry:
HDFC Bank A/c Dr ₹25,000
To Cash A/c ₹25,000
2. Cash Withdrawn from Bank: When money is withdrawn from the business bank account for office use, it is recorded as a contra entry. For example, a business withdraws ₹10,000 from SBI Bank for office cash expenses. Here, cash in hand increases, and bank balance decreases.
Entry:
Cash A/c Dr ₹10,000
To SBI Bank A/c ₹10,000
3. Transfer Between Two Bank Accounts: When money is transferred from one bank account to another bank account of the same business, it is a contra entry. For example, ₹50,000 is transferred from SBI Current Account to ICICI Current Account. Both bank accounts belong to the same business, so this is an internal transfer.
Entry:
ICICI Current A/c Dr ₹50,000
To SBI Current A/c ₹50,000
4. Petty Cash Replenishment: If petty cash is maintained as a cash type account, transferring money from the main cash or bank account to petty cash may be recorded as a contra entry. However, when petty cash is later used to pay for stationery, tea, courier, or other expenses, that expense payment is not a contra entry. For example, ₹5,000 is transferred from the bank to petty cash.
Entry:
Petty Cash A/c Dr ₹5,000
To Bank A/c ₹5,000
What is Not a Contra Entry?
A transaction is not a contra entry if it involves an outside party or creates income, expense, liability, or receivable. Basically, if both sides of the entry are only cash or bank accounts of the same business, it is usually a contra entry. If any outside party or expense is involved, it should be recorded through another voucher type . Check out some examples to understand this better:
| Transaction | Contra Entry? | Reason |
|---|---|---|
| Cash deposited into own bank account | Yes | Internal cash to bank transfer |
| Cash withdrawn from bank for office use | Yes | Internal bank to cash transfer |
| Transfer from SBI current account to ICICI current account of the same business | Yes | Internal bank to bank transfer |
| Payment made to supplier | No | Supplier is an external party |
| Salary paid to employee | No | Employee is an external party |
| Loan received from bank | No | Bank is acting as lender |
| Customer payment received | No | Customer is an external party |
| Rent paid in cash | No | Rent is an expense paid to an external party |
| Stationery purchased from petty cash | No | It is an expense entry |
Format of a Contra Entry in the Cash Book
In a manual cash book, contra entries are usually recorded in a double-column or triple-column cash book. A triple-column cash book has separate columns for: Cash, Bank and Discount. Contra entries affect the cash and bank columns. The same transaction appears on both the debit and credit sides. For example:
| Date | Particulars | L.F. | Cash Dr ₹ | Bank Dr ₹ | Date | Particulars | L.F. | Cash Cr ₹ | Bank Cr ₹ |
|---|---|---|---|---|---|---|---|---|---|
| 05/05/2026 | To Bank A/c | C | - | 25,000 | 05/05/2026 | By Cash A/c | C | 25,000 | - |
| 08/05/2026 | To Cash A/c | C | 10,000 | - | 08/05/2026 | By Bank A/c | C | - | 10,000 |
The “C” mark shows that it is a contra entry. Since the cash book itself works as both journal and ledger for cash and bank transactions, the same entry is not posted again separately in the ledger.
Key Rules for Recording Contra Entry
- For cash deposited into bank, record “To Cash A/c” on the debit side in the bank column.
- For the same cash deposit, record “By Bank A/c” on the credit side in the cash column.
- For cash withdrawn from bank, record “To Bank A/c” on the debit side in the cash column.
- For the same cash withdrawal, record “By Cash A/c” on the credit side in the bank column.
- Write “C” in the Ledger Folio column in a manual cash book.
- Do not record the same transaction again as a separate payment, receipt, or journal entry .
- Add a clear narration so the transaction can be verified later during reconciliation or audit.
How Contra Entry Affects Accounts
A contra entry changes the location of funds, not the financial result of the business.
| Statement or Report | Effect |
|---|---|
| Trial Balance | Debit and credit effects are equal, so the trial balance remains balanced |
| Balance Sheet | One asset increases and another asset decreases, so total assets remain unchanged |
| Profit and Loss Account | No effect because no income or expense is involved |
| Cash Flow Statement | Normally excluded when it is only a movement between cash and cash equivalents |
| Bank Reconciliation | May create timing differences if the bank processes the transaction later |
Contra Entry and Bank Reconciliation
Contra entries are important during bank reconciliation because cash book and bank statement dates may not always match. For example, if cash is deposited into the bank on 31 May but the bank credits it on 1 June, the cash book will show the deposit before the bank statement does. This creates a temporary timing difference.
The same issue can happen with cheque deposits, ATM withdrawals, cash deposits, and interbank transfers. A cash withdrawal or inter-bank transfer may appear in the books first and in the bank statement later. To avoid confusion, each contra entry should include the following so that its easier to match the books with the bank statement:
- Date of transaction
- Bank name
- Amount
- Mode of transfer
- Deposit slip , cheque number, UTR, or reference number where applicable
- Clear narration
How to Record a Contra Entry in BUSY Accounting Software
In BUSY accounting software , contra entries are recorded through the Contra Voucher. This voucher is used for bank deposits, cash withdrawals, and transfers between cash, bank, and bank OD accounts.
Step 1: Open Contra Voucher- Go to: Transactions > Contra. The exact menu name may vary slightly depending on the BUSY version or configuration.
Step 2: Select Date and Voucher Series- Choose the voucher series and enter the transaction date.
Step 3: Select the Debit Account- Select the account that receives the money. For example:
- For cash deposited into bank, debit the bank account.
- For cash withdrawn from bank, debit the cash account.
- For transfer from one bank to another, debit the receiving bank account.
Step 4: Select the Credit Account- Select the account from which money is going out. For example:
- For cash deposited into bank, credit the cash account.
- For cash withdrawn from bank, credit the bank account.
- For bank to bank transfer, credit the sending bank account.
Step 5: Enter Amount and Narration- Enter the transaction amount and add a clear narration. For example, cash deposited at SBI branch on 10/05/2026.
Step 6: Save the Voucher- Save the voucher after checking the debit account, credit account, amount, and narration.
Example of Contra Entry in BUSY
Arjun Traders deposits ₹30,000 cash into SBI Current Account on 10 May 2026. This entry increases the SBI Current Account balance and reduces cash in hand by the same amount.
Entry:
Debit: SBI Current A/c ₹30,000
Credit: Cash A/c ₹30,000
Narration: Cash deposited into SBI Current Account on 10/05/2026.
Common Mistakes to Avoid
1. Recording Bank Loan as Contra Entry
A bank loan is not a contra entry. The bank is acting as a lender, so a liability is created. Correct entry would be:
Bank A/c Dr
To Bank Loan A/c
2. Recording Customer Payment as Contra Entry
Customer payment is not a contra entry because it involves an external party. If the customer's cash is later deposited into the bank, only then can it be considered a contra entry. The correct treatment depends on whether the sale was already recorded. Correct entry would be:
Cash/Bank A/c Dr
To Customer A/c
or
Cash/Bank A/c Dr
To Sales A/c
3. Not Adding Narration
A contra entry without narration is difficult to verify during audit or reconciliation. Always mention the purpose and reference details such as cheque number, UTR, deposit slip number, or cash deposit reference.
4. Choosing the Wrong Bank Account
Businesses with multiple bank accounts should be careful while selecting the debit and credit accounts. Selecting the wrong bank account can create reconciliation issues and incorrect bank balances.
5. Treating Expenses as Contra Entry
Payments for rent, salary, electricity, stationery, courier, repair, or supplier dues are not contra entries. These transactions involve expenses or external parties. For example, if ₹2,000 is paid from petty cash for stationery, it should not be recorded as a contra entry. The correct entry would be:
Stationery Expense A/c Dr ₹2,000
To Petty Cash A/c ₹2,000
Contra Entry vs Payment Entry vs Receipt Entry vs Journal Entry
| Basis | Contra Entry | Payment Entry | Receipt Entry | Journal Entry |
|---|---|---|---|---|
| Meaning | Internal transfer between cash and bank accounts | Money paid out | Money received | Accounting adjustment or non-cash entry |
| External party involved | No | Usually yes | Usually yes | May or may not be |
| Common accounts affected | Cash, bank, bank OD | Cash or bank and expense, supplier, liability | Cash or bank and customer, income, asset | Any account |
| Example | Cash deposited into bank | Supplier payment | Customer receipt | Depreciation entry |
| Effect on P&L | No effect | May affect P&L | May affect P&L | May affect P&L |
How to Correct a Wrong Contra Entry
If the entry is incorrect, the correction method depends on whether the books are still open.
- If the Period is Open: Edit the original contra voucher and correct the account, amount, date, or narration.
- If the Period is Closed or Audited: Pass a reversal entry with the debit and credit accounts swapped. Then record the correct contra entry again. For example:
Wrong entry passed:
Cash A/c Dr ₹15,000
To Bank A/c ₹15,000
Reverse the wrong entry first and pass the correct entry with a clear narration. Pass the correct entry as follows :
Bank A/c Dr ₹15,000
To Cash A/c ₹15,000
Does Contra Entry Affect GST?
No. A contra entry, by itself, does not create GST liability because it is only an internal transfer of funds. GST applies to taxable supplies of goods or services, not to movements of money between the business’s own cash and bank accounts. However, contra entries should still be recorded properly because clean books help during audits, cash verification, and reconciliation.
Explore All BUSY Calculators for Easy GST Compliance
Conclusion
A contra entry is used to record internal fund transfers between cash and bank accounts of the same business. Common examples include cash deposited into a bank, cash withdrawn from a bank, bank-to-bank transfers, and petty cash top-ups where petty cash is maintained as a cash-type account. In BUSY, these transactions should be recorded using the Contra Voucher to keep cash and bank balances accurate and make reconciliation easier.
