A contra entry is a type of accounting transaction that involves two opposite entries in the same account. Contra entries are used to cancel out or offset the effect of a previous transaction. For example, if a company receives payment for goods or services that were previously sold on credit, the payment would be recorded as a contra entry to the sales account.
Contra entries are typically used to record transactions that involve the transfer of funds between accounts, rather than the creation or destruction of assets. For example, a company might use a contra entry to record the transfer of funds from a checking account to a savings account or to record the transfer of funds from one department to another within the same company.
Contra entries are usually recorded in the same journal as regular transactions, but they are marked with a “C” or “contra” to indicate that they are offsetting entries. Contra entries can be used to simplify the accounting process and reduce the number of entries.
How to create a contra entry on Tally
To create a contra entry in Tally, first go to the Gateway of Tally. Next, select the “Contra” option under the “Voucher Type” menu. This will open a new voucher screen for contra entries.
Next, enter the date of the transaction and select the appropriate ledger accounts for the contra entry. For a contra entry, the debit and credit amounts should be equal. As a result, we enter the same amount in both the “Debit” and “Credit” fields.
Once you have entered the necessary information, you can save the contra entry by pressing the “Save” button. This will add the contra entry to your Tally ledger and update the account balances accordingly.
It’s important to note that contra entries are used to transfer funds between two bank accounts in the same name. You will need to use a different type of voucher if you need to transfer funds between accounts with different names.