What is the purpose of contra entry?
A contra entry is a transaction that is recorded on both the debit and credit side of the cash book simultaneously. Such entries arise when there is a transaction between cash and bank, such as depositing cash into the bank or withdrawing cash from the bank for office use.
The main purpose of contra entry is to record these dual-aspect transactions within the cash book itself. Against such entries, the letter 'C' (which stands for contra) is written in the L.F. column, indicating that these entries are not to be posted to the ledger account. This helps in avoiding double posting and ensures accurate accounting records.
Explanation
The textbook explains that contra entries occur when transactions affect both cash and bank columns simultaneously, like withdrawing cash from bank for office use. The key purpose is administrative efficiency - by marking these entries with 'C' in the L.F. column, accountants know not to post them to the ledger, preventing duplication. The context also mentions an example: when a cheque received earlier (recorded in cash column) is deposited into the bank, it creates a contra entry showing Bank Column on receipt (Dr.) side and Cash Column on payment (Cr.) side.