Software: Intuit QuickBooks accounting software
Contra is to knock off an outstanding Sales Invoice against a Purchase Invoice (Supplier Bill); usually, the customer is also your supplier (sometimes it may be three parties). There is no cash payment, just to knock off the accounts receivable with the accounts payable.
For the contra transactions, in addition to the standard payment and receipt, there are few extra steps involved.
Assume that you have invoiced the customer, ABC Pte Ltd, on 20 May for the amount of 588.50.
The double entry for the Sales Invoice transaction:
Debit Accounts Receivable 588.50
Credit Sales Income 550.00
Credit GST Output 38.50
On 10 Jun, you received a Bill from ABC Pte Ltd for an amount of 513.60.
The double entry of the Bill transaction:
Debit Purchase 480.00
Debit GST Input 33.60
Credit Accounts Payable 513.60
On 30 Jun, instead of receiving the full payment of 588.50 from ABC Pte Ltd, they send you a payment of 74.90 and requested to contra off the balance of 513.60 from the outstanding amount which you have owed them.
For contra transaction, there is no cash payment (besides the remaining outstanding amount), you need an additional contra account (I prefer to create as a “Bank” account type instead of using a Other Current Liability or Other Current Asset account) as a transit account to knock off the accounts receivable with the accounts payable.
You can use the Receive Payment (Customer Payment) transaction to receive the contra amount of the sales invoice into the Contra account.
The double entry for the Receive Payment transaction:
Debit Contra 513.60
Credit Accounts Receivable 513.60
Next, you use the Pay Bill transaction to record the payment of the outstanding Bill with the Contra account.
The double entry for the Pay Bill transaction:
Debit Accounts Payable 513.60
Credit Contra 513.60
Lastly, use a Receive Payment transaction again to receive the remaining outstanding amount of 74.90 into the Bank account.
The double entry for the final Receive Payment transaction:
Debit Bank 74.90
Credit Accounts Receivable 74.90
The additional steps are necessary to knock off the outstanding bills and invoices into the contra account. If you prefer to use an Other Current Liability or Other Current Asset account instead of a Bank account type as a contra account, then you are required to use two General Journal transactions for the contra; one is for the Contra of Accounts Receivable and another for the Contra of Accounts Payable as having both the accounts receivable and accounts payable in the same General Journal transaction is not allowed in Quickbooks. Besides, you require extra steps (Receive Payment and Pay Bill) to knock off the accounts receivable and accounts payable (although is zero balance) so to remove it from the Ageing reports.
Note: The contra account should have ZERO balance.
You can use the contra method as discussed in the post.
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Hi, please advice if the contra involve 3 parties like
B is A’s subsidiary company.
B supply material to C.
C Supply transport to A
So in this case can I contra account in between the C( transport charges billed to A) withB(invoice billed to C)?
Please advice .