When we draw cash from bank, there are entries to be made for both bank and cash coloumn of the cash book. We debit the cash book for receiving the cash and crediting the bank account for reduction of cash due to withdrawal. This is called 'contra entry.
Similar example is depositing cash into our bank account
In the Book-keeping, cash transactions can be recorded in one of the type of cash book, called as 'three column cash book'. In this type of cash book, the credit entry and debit entry of both cash transactions and bank transactions are recorded.
Contra entry is related to Bank transactions. It can be recorded in two situations:
1. When cash deposited in bank:
2. When cash withdrawn from bank:
For the first transaction, entry in cash book would be:
Bank A/c dr.
To Cash A/c
For the second transaction, entry would be:
Cash A/c dr.
To Bank A/c
In these two situations, one amount is debited in bank column and the other amount is credited in cash column and vice-versa.
And the word 'C' is entered in Ledger Folio (LF) column for Contra Entry.
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Cash A/C Dr. xxxx
To Bank A/C xxxx
This is a contra entry. Here cash book is debited as well as credited. The net effect is zero. Cash balance increases and bank balance decreases. The letter 'C' is entered in the L/F (ledger folio) column.
1) Cash withdraw from bank affect both cash and bank account (cash balance increase and bank balance decrease).
2) Cash deposit into bank affect both cash and bank account (bank balance increase and cash balance decrease).