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How Do I Record A Contra?

Quite a lot of businesses have customers who are also suppliers – It is not uncommon for a supplier who is owed more by the customer than he owes to agree to a contra so that the customer pays only the net value and the supplier does not need to make a payment. The reverse situation also applies.

There are two ways of dealing with this scenario –

  1. The supplier can post a supplier payment and a customer receipt when he receives the net amount.
  2. The supplier posts a receipt for the received amount into his sales ledger and creates a contra entry for the balance on the purchase ledger. The contra is made through Ledgers > Nominal > Journals > Standard and a debit is made to the purchase ledger and a credit to the sales ledger. You will then need to allocate the journals made to both the sales and purchase ledgers to the invoices settled.

You may need to agree with the other party which invoices have been settled before posting the contra.

Where no payment has been made but a contra is necessary – e.g in the scenario above both options are still available as the postings through the cash book come back to Nil. Alternatively just raise a journal to both sales and purchase ledgers.