In this article, we will learn in-depth about contra entry and reverse entry, including their definition, examples, accounting treatment, and much more.
What is Contra entry?
If a transaction affects both the cash account and the bank account at the same time, it is called contra entry. Contra entry increases cash and decreases bank deposits, or decreases cash and increases bank deposits. Such transactions are recorded on both the debit and credit sides of the cash book.
If the amount of money is written in the cash amount column on the debit side, it has to write in the bank amount column on the credit side. Conversely, the amount of money has to be written in the bank column on the debit side and in the cash column on the credit side.
In the description column on both sides of the cash book, write “Cash Account” or “Bank Account”. After giving posting to both sides of the cash book the letter-“C” may be written beside the name of both accounts to identify contra entry.
Example of Contra Entry:
Deposit $3000 into a bank account, withdraw $500 from a bank account.
Accounting Treatment for Contra Entry:
The cash book usually requires a contra entry for the following two transactions.
- If the cash and check included in the cash account deposited into the bank.
- If the cash is withdrawn from the bank for business purpose.
1. Cash deposited into the bank:
Cash deposited in the bank, In this case, the word “Cash account” should be written in the description column on the debit side of the cash book and the amount of money should be placed in the Bank column. Similarly, on the credit side, write the word “Bank account” in the Description column and put the amount of money in the cash column.
For example, on July 20, 2020, $20,000 was deposited in the bank.
In this case, the entry in the cash book will be as follows:
| Date | Description | V. NO | L.F. | Cash | Bank | Date | Description | V. No | L.F. | Cash | Bank |
| July 20, 2020 | Cash A/C (C) | $20,000 | Bank A/C (C) | $20,000 |
2. Withdrawn cash from the bank for the business purpose:
In this case, the word “bank account” should be written in the description column on the debit side of the cash book and the amount of money should be placed in the cash column. Similarly, on the credit side, write the word “cash account” in the Description column and put the amount of money in the bank column.
For example, on July 20, 2020, $3000 was withdrawn from the bank.
In this case, the entry in the cash book will be as follows:
| Date | Description | V. NO | L.F. | Cash | Bank | Date | Description | V. No | L.F. | Cash | Bank |
| July 20, 2020 | Bank A/C (C) | $3,000 | Cash A/C (C) | $3,000 |
What is Reverse Entry?
Transactions that have to be written in the cash column on both the debit and credit sides of the cash book are called reverse entries.
Usually, if the cash check received from the debtor is paid along with the creditor, the reverse entry has to be made in the cash book.
Example of Reverse Entry:
After receiving a check for $10,000 from Donald, it was provided to Biden.
In this case, the entry in the cash book will be as follows:
| ate | Description | V. NO | L.F. | Cash | Bank | Date | Description | V. No | L.F. | Cash | Bank |
| July 20, 2020 | Cash A/C | $10,000 | Biden A/C (C) | $10,000 |
You can also read:
- Concept of Cash book and Features of Cash Book.
- What is Discount, Trade Discount and Cash Discount?
- Why Trade Discount is not accounted for?
- Short Questions and Answers-Cash Book.
