how to solve the questions of contra entry
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Answer:
Contra entry refers to transactions involving cash and bank account. In other words, any entry which affects both cash and bank accounts is called a contra entry. Contra in Latin means the opposite. It is more popularly known as contra voucher.
To make the definition further simpler, any transactions involving a transfer of cash between one cash a/c to another or one cash a/c to another bank a/c or one bank account to another is called as a contra entry.
Contra Entry
As illustrated in the above image, the following is the list of contra transactions:
Cash account to Bank account
Bank account to Cash account
Bank account to Bank account
Cash account to Cash account
After looking at the above list, you might be wondering about the one which is the mentioned in the last i.e. ‘Cash account to Cash account’
To clear this confusion, we need to understand little more about ‘Petty Cash Account’.
It's usual business practice to maintain an account known as ‘Petty Cash’ with a small amount of cash to meet tiny expense such as courier, refreshments, stationeries etc. Whenever such small expenses are to be paid, the petty cash vouchers are used and paid from petty cash.
To fund this account, the cash is transferred from the main cash account to petty cash account. This when it is referred to as cash account to cash account.
The examples in the following section will make your understanding little deeper on contra entry.
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