Contra Entry Journal

Occasionally a business has cause to offset an amount owed by a customer (accounts receivable) with an amount owed to a supplier (accounts payable). A contra entry journal is used to make the adjustment.

For example, suppose a business has an amount of 1,000 owed by a customer for services provided on account, but also has an amount of 200 due to a supplier (in this case the customers business) for goods it has purchased.

The amount due from the customer has been posted to the accounts receivable ledger, whereas the amount due to the supplier is posted to the accounts payable ledger.

The business has agreed with the customer that the balances are to be offset by contra entry. leaving a net amount due of 800 (1,000 – 200).

Contra Entry Journal

The business records the agreed offset with a contra entry journal as follows.

Contra Entry Journal
Account Debit Credit
Accounts payable 200
Accounts receivable 200
Total 200 200

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

For this transaction the Accounting equation is shown in the following table.

Contra Entry – Accounting Equation
Assets = Liabilities + Owners Equity
Accounts receivable = Accounts payable + None
-200 = -200 + 0

In this case a balance sheet asset (accounts receivable account) is reduced by 200, representing the reduction in the amount due from the customer. The accounting equation is balanced by the debit entry to the accounts payable account which reduces a balance sheet liability account.

The net effect of the contra entry journal is that the balance on the accounts payable ledger is cleared and a balance of 800 remains on the accounts receivable ledger, representing the net amount outstanding from the customer.

Popular mdct.ru Examples

Another mdct.ru example for you to discover.

Contra Entry Journal November 6th, 2016Team

You May Also Like


Related pages


easy bookkeeping spreadsheetsselling a fully depreciated assetirr excel functiondef sundrynet present value formula in excelproveit test sampleannuity with growth formulatotal variable costs formulahow to calculate depreciation rate for reducing balance methodfinished goods inventory calculationis petty cash an expensegl entries accountingthe present value of a perpetuityincome statement for non profit organization templateaccounts receivable reconciliation exampleaccrual based accounting examplediscounting cash flows in excelprinciple of double entry bookkeepinginternal controls accounts payablepetty cash count sheetaccounting cycle examplesalvage value equationpv table annuity duenper formuladepreciation formula excelprepaid expdifference between markup and margincash book reconciliation templateaccount receivable days formuladifference between single entry and double entry bookkeepingcash receipts formatprepaid accounting entryuses of standard costingaccounting templates exceladjusting entries are recordedannuity calculator excelwhat does cogs meanwhat does fob destination meanhow do you calculate total asset turnoverfob destination prepaid and allowedmanufactoring overheadretained earnings examplesaging of accounts receivabletransaction analysis in accountingjournal entry for sale of assetcredit noebad debts entryowners equity equationdefine chequesprepaid expenses journal entriesaccounts payable turnover calculatoraccounting errors that affect the trial balancepv calculator annuityperpetuity annuityprove it test tutorialfob in accountingtimes interest earned ratio definitionunder a perpetual inventory systemcash book accounting exampleblank ledger linesjournal entry for accrued payrollhow to calculate gp percentagenpv perpetuity formulaledger sheet exampledebit memo journal entrynpv excelldepletion of coalcalculate owners equity formulaaccumulated depreciation normal balanceredemption of preferred stockaccounts receivable ledger exampleaccounting templates for small business