Meaning of Contra Entry:

A contra entry is a transaction that is recorded both on the debit and credit sides of the cash book simultaneously. These entries represent a debit or credit of the cash account against the bank account or vice-versa.

Situations where Contra Entry arises:

Contra entries occur when cash is withdrawn from the bank for office use. In this case, reverse entries are recorded - the bank column is credited and the cash column is debited. Another situation is when a cheque received on one day is deposited into the bank on another day. On the day of deposit, it is shown in the Bank Column on receipt (Dr.) side and in the Cash Column on payment (Cr.) side.

Treatment in Double Column Cash Book:

When recording contra entries in a double column cash book, the letter 'C' (which stands for contra) is written in the L.F. column against such entries. This letter C indicates that these entries are not to be posted to the ledger account.

Posting to Ledger:

Entries marked with 'C' are completely ignored while posting from the cash book to the ledger. When the bank column is maintained in the cash book, the bank account is not opened in the ledger as the bank column serves the purpose of the bank account.

Significance:

The contra entry helps in maintaining accurate records when there is a transfer between cash and bank accounts within the same cash book, ensuring that double entry principles are followed without needing additional ledger postings.