A contra entry records money moving between two accounts belonging to the same business, usually cash and bank. For example, depositing cash into the business bank account debits Bank and credits Cash. The transaction changes where the organisation holds its money, but it does not create income or an expense and does not change total funds.
The term is common in the three-column cash book. Although it appears on both sides, one asset simply increases while another decreases equally.
What do you mean by contra entry in accounting?
In accounting, contra means “opposite” or “against”. A contra entry therefore contains two corresponding entries that offset each other within the business’s own cash and bank records.
A cash-book contra entry has three defining features:
- The money remains under the control of the same business.
- Both sides involve cash, bank or another internal funds account.
- It does not create revenue, an expense, a liability or owner’s drawings.
This treatment follows double-entry bookkeeping, under which every transaction has a dual effect. The Association of Chartered Certified Accountants (ACCA) explains that total debits and credits remain equal, including when one asset increases while another asset decreases.
How does a contra entry work?
Suppose a business deposits £2,000 of cash takings into its bank account. Bank increases, so Bank is debited. Cash in hand decreases, so Cash is credited.
| Transaction | Debit | Credit | Effect on total cash and bank funds |
|---|---|---|---|
| Deposit £2,000 cash into the business bank account | Bank £2,000 | Cash £2,000 | No change |
| Withdraw £600 from the bank for office cash | Cash £600 | Bank £600 | No change |
In a traditional three-column cash book, the £2,000 deposit appears in the bank column on the debit side and the cash column on the credit side. The letter C is normally placed in the ledger-folio column to show that it is a contra entry recorded within the cash book rather than an amount requiring a separate personal-account posting.
A contra entry moves an equal amount between the business’s cash and bank accounts; one asset increases as the other decreases.
How to record a contra entry correctly
Use this five-step test before selecting the contra-entry option in a cash book or accounting system:
- Identify both accounts. Confirm that both accounts belong to the same business.
- Check whether money stays inside the business. A payment to a supplier or receipt from a customer is not a contra entry.
- Determine which account increases. Debit the receiving cash or bank account.
- Determine which account decreases. Credit the cash or bank account providing the funds.
- Record the same amount on both sides. In a manual cash book, mark the ledger-folio field with C.
Accounting software may label this function Transfer, Bank Transfer or Contra. The logic remains the same: debit the destination and credit the source.
What is not a contra entry?
An entry is not contra merely because it includes cash or bank. The decisive question is whether funds move internally or involve another accounting category.
| Transaction | Contra entry? | Correct treatment |
|---|---|---|
| Cash deposited into the business bank account | Yes | Debit Bank; credit Cash |
| Cash withdrawn from the bank for office use | Yes | Debit Cash; credit Bank |
| Payment made to a supplier | No | Debit Payables or Expense; credit Bank |
| Cash received from a customer | No | Debit Cash or Bank; credit Receivables or Revenue |
| Owner withdraws money for personal use | No | Debit Drawings; credit Cash or Bank |
| Bank charges appear on the statement | No | Debit Bank Charges Expense; credit Bank |
Misclassifying an external payment as contra could omit an expense, payable or receivable.
Contra entry versus contra account
A contra entry is a transaction, whereas a contra account is a general-ledger account whose normal balance is opposite to the related account. OpenStax defines a contra account as an account paired with another account that has an opposite normal balance and adjusts the paired account’s reported balance. Examples include accumulated depreciation and allowance for doubtful accounts. OpenStax, Principles of Accounting, Volume 1
| Term | Meaning | Example |
|---|---|---|
| Contra entry | Internal movement of funds recorded as equal debit and credit entries | Cash deposited into the business bank account |
| Contra account | An account that offsets the balance of a related account | Accumulated depreciation offsets property, plant and equipment |
| Reversing or correcting entry | An entry used to reverse or correct a previous posting | Reversing an expense posted to the wrong account |
The word contra can also describe a set-off between two parties that owe each other. HM Revenue & Customs notes that VAT-registered businesses must still account for each separate supply where applicable. This differs from the cash-book entry above. HMRC guidance on part-exchanges, barters and set-offs
Why are contra entries important?
Contra entries preserve the audit trail without treating an internal transfer as income or expenditure. They also support cash and bank reconciliation.
Common errors include recording one side only, reversing debit and credit, treating an owner’s withdrawal as office cash, or duplicating an imported bank transfer. Each error distorts account balances.
For a stronger grounding in financial records, EPW’s Accounting for Non Accountants in Leadership Roles Course covers accounting fundamentals, statements and financial decision-making. Readers can also explore EPW’s Finance and Accounting Training Courses, Cash Flow Management and Liquidity Planning Course and guidance on why professionals choose an accountancy course.
Frequently asked questions
Is a contra entry a debit or a credit?
It is both. The receiving account is debited and the source account is credited by the same amount.
Does a contra entry affect profit?
A pure internal transfer does not affect profit because it creates neither income nor an expense. Any related bank fee must be recorded separately as an expense.
Is withdrawing cash from the bank always a contra entry?
No. It is contra when the cash remains in the business for office use. If the owner takes it for personal use, the debit is to Drawings rather than Cash.
Are contra entries posted to the ledger?
In a traditional three-column cash book, the cash and bank sides are already recorded in the same book and are marked C. Accounting software still creates the underlying debit and credit records automatically.
Conclusion
A contra entry records an internal transfer between a business’s own cash and bank accounts. Debit the account receiving the money, credit the account providing it, and keep the amount equal on both sides. If an external party, expense, revenue, liability or drawings account is involved, the transaction is not a cash-book contra entry.
Ready to build practical confidence with accounting records and financial statements? Explore EPW’s Accounting for Non Accountants in Leadership Roles Course, review available dates and locations, or request tailored in-house training.
Sources and References
- Association of Chartered Certified Accountants. The Accounting Equation. Accessed 29 August 2026.
- OpenStax. Principles of Accounting, Volume 1: Financial Accounting — Key Terms. Published 11 April 2019; accessed 29 August 2026.
- HM Revenue & Customs. VAT: Part-Exchanges, Barters and Set-Offs. Published 1 July 2014; accessed 29 August 2026.