Category Archives: Contra

How to use the contra feature in MoneyWorks accounting system?

The contra feature in MoneyWorks is not to offset between customers owing or between the outstanding of a customer and a supplier. A contra, in MoneyWorks accounting system, is to knock off the credit note of the same customer or supplier with their invoice.

Let’s say you received a credit note of US$414.30 from a foreign currency supplier and going to use it to offset the outstanding purchase invoice of $41,430.

Method one

The first method is to select the credit note while making a payment to the supplier. This method may be more “controlled’ to some users as you can dictate the bank account, date, and credit amount to use.

Method two

Another method is to use the contra invoice feature from the command menu to offset the credit note against the invoice. Highlight the available credit note and follow the contra invoice wizard to select the invoice to offset. It’s simple and easy.

Contra a credit note with an invoice

However, this method does not have an option of changing the contra date and credit amount used. A dummy bank account, which is the bank account used in your last transaction, will add to the contra payment transaction. Since the dummy bank account is the account used in the previous transaction, and there is no accounting impact; therefore, whether the currency matches the transaction currency or not is immaterial.

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How to convert an inventory part to a demo equipment in the QuickBooks accounting software?

Software: Intuit QuickBooks #accounting software

Some retailer or wholesaler may convert the existing inventory into a demo equipment for the showroom or as a loan set for testing.

Your accountant may classify a demo equipment as a fixed asset aka non-current asset if the expenditure qualifies (Please check with your accountant if you have doubt on asset classification). Then, you need to transfer the item from the inventory asset to the fixed asset account.

You can create an inventory part from the Item List whereas the fixed asset item is from the Fixed Asset list under the Lists menu.

An Inventory Adjustment is used to adjust the inventory part but not the fixed asset. You may consider using a Bill or a Write Cheque for transferring between the inventory asset and the fixed asset.

Inventory to Fixed Asset

You select the demo equipment from the Item tab and enter the cost of the equipment. On the following detail line of the Item tab, you pick up the inventory part and enter a negative quantity and value for the item. The journal behind the transaction will debit the fixed asset and credit the inventory asset account. The transaction amount is zero as both the inventory asset and fixed asset account have contra with each other.

You record a sales invoice with the demo equipment when the used equipment has sold. The journal of the sales invoice is debiting the accounts receivable (or the bank account) and credit the fixed asset account. A General Journal is needed to adjust the fixed asset account when the sales value of the demo equipment is different from the asset cost (Please check with your accountant on disposal of fixed asset).

Resources:

Please visit the IRAS website if the above links have moved.

 

Contra

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.