Before explaining “How to Create Contra Entries in Tally”, let me explain you what is actually a contra entry.
In double entry accounting system, contra entry refers to an accounting entry which involves transfers between cash accounts and bank accounts or between different bank accounts.
What is a Contra Entry
In simple words, if the following transactions take place, it is a contra entry.
From Bank account to Cash account – This means when you are withdrawing money from bank such as ATM withdrawal for daily expenses or withdrawing big amount of cash for business or personal purposes.
The accounting entry for this transaction will be a contra entry.
From Cash account to Bank Account- This is the exact opposite of the above transaction. When you deposit money in bank, its accounting entry will be a contra entry.
From Bank account to another Bank account – It is common to have more than one bank account in business or for personal use. When you transfer your money from one bank account to another bank account, its accounting entry will be a contra entry.
From Cash account to another Cash account – This happened in old times where there were no commercial banks or proper banking channels and people usually did all the business in cash. In that old times, some businesses have different branches.
When cash was transferred from one branch to another, that will be a contra entry for accounting purposes.
Although now a days, it is not prevalent and almost all business dealings are done through banking channels.
How to create a Contra Entry in Tally
Creating contra entry is Tally is same as creating a simple accounting voucher in Tally.
I will show you a step by step process by following which you can easily create contra entries in Tally for all the transactions which I described above.
In short I will create total four contra entries in Tally. They are:
- Bank Account to Cash Account
- Cash Account to Bank Account
- Bank Account to another Bank Account
- Cash Account to another Cash Account (although not widely used today.)
Contra Entry for Bank Account to Cash Account in Tally
Let’s start with the first one which is the contra entry for Bank Account to Cash Account.
For this entry you will need to create 2 ledgers namely, Bank Account and Cash Account.
Very few people know that the ledger for Cash Account is already pre-created by Tally. So you don’t have to create another Cash Account.
In this post, you will only have to create a Bank Account.
You can read this post on creating ledgers in Tally to know how you can create a ledger named Bank Account.
Now, to create a contra entry for Bank Account to Cash Account, go to Accounting Vouchers, from Gateway of Tally.
Select Contra from the right hand green colored sidebar as shown in picture below or just press F4 which is the shortcut for contra voucher in Tally.
A white screen will appear for creating contra voucher entry in Tally.
You need to create the contra entry in as shown in the picture.
This is how a contra entry for transferring money from a Bank Account to Cash Account is created in Tally.
In simple words, this entry says that I withdrew Rs.500 from my Bank Account. As soon as I withdrew it, it becomes cash therefore second account is Cash.
Let’s move on to the next contra entry which is opposite of what I created just above.
Contra Entry for Cash Account to Bank Account in Tally
In this entry we are depositing cash in the bank. Therefore the entry will be as under.
In the contra entry, I have transferred or deposited Rs.500 in the Bank.
Therefore the Cash Account is credited and Bank Account is debited.
Contra Entry for Bank Account to Another Bank Account in Tally
When we transfer money from one of our bank accounts to another bank account, this contra entry is required.
If you have more than two bank accounts and you transfer money in between them, then the accounting entry will be as described above.
Contra Entry for Cash Account to Another Cash Account in Tally
I have already said at the beginning of this post that this kind of transactions are now a days not occur in most businesses. But still as it is a form of a contra entry, I would like to cover it here.
Imagine if your business has two branches in the same city and you transfer cash from one branch to another branch, the entry will be as shown in the picture below.
At the end…
These are the contra entries that are most widely used in any business or for personal accounting purposes.
Actual meaning of contra is opposite or against something. If I construe the meaning of contra in accounting, it means money transferred from one form to its opposite form.
For example, transferring money from bank to another bank or cash to bank. They are exact opposite. Hence the name contra entry.
If you have any questions or suggestions, comment down below and I’ll be happy to answer them all.