Software: MoneyWorks accounting software

When your customer is also your supplier, in small business, you usually prefer to contra off the amount instead of exchanging cheque. In accounting point of view, contra is a simple process; you just need to debit your Accounts Payable with the Accounts Receivable for the amount owing and follow by issuing the balanced amount to the supplier or receiving the balanced outstanding from the customer.

However, in computerized accounting, due to the complexity of programming, you may not able to do it within one single transaction. Small business accounting software like QuickBooks and MoneyWorks will require using a third account, Contra account, to handle the contra between Accounts Receivable and Accounts Payable.

A Contra bank account is needed in the contra process. Bank account type is used as you can use it in both receipt and payment.

The transactions

Assuming ABC Pte Ltd, your customer, owing you $10,000.00, and ABC Pte Ltd also billed you for some services provided at $3,000.00. Both transactions will be recorded in MoneyWorks accounting software as Sales Invoice ($10,000.0) and Purchase Invoice ($3,000.00).

Since you are going to contra off the $3,000.00 owing to ABC Pte Ltd with the amount ($10,000.00) owing by them, you need to create 3 transactions.

First, you do a payment of $3,000.00 to ABC Pte Ltd using the Contra bank account. The double entry for this payment transaction will be:

Debit Accounting Payable: 3,000.00

Credit Contra Bank account: 3,000.000

Next, you do a Receipt from ABC Pte Ltd for $3,000.00 into the Contra Bank (you just need to record the contra amount instead of the full amount since there are two bank account involved). The double entry for receipt will be:

Debit Contra Bank account: 3,000.00

Credit Accounts Receivable: 3,000.00

Now, the Contra bank account will be zeroed off.

Lastly, do a receipt from ABC Pte Ltd for the balanced amount of $7,000.00 owing into your actual bank account. The double entry will be:

Debit Bank: 7,000.00

Credit Accounts Receivable: 7,000.00

To check the transaction history, you can do a Payment Enquiry to understand how was the invoice paid.

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