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Hi guys, I’m having trouble grasping Contra entries.
In my BPP text book it says they are not examinable in FA1, yet the two mocks at the back of the book have questions on them.One of the questions refers to the Payables ledger balance and errors found.
It says that a contra entry of $169 was entered in the control a/c but not in the receivables or payables ledgers.How do I treat this?
Many thanks.
Contra entries are cancelling entries eg offset an amount owed by Customer ABC Co in the receivables ledger with what is owed to ABC Co in the payables ledger. The contra always reduces the balance in both ledgers.
For your specific question $169 was Debited to the Payables ledger control account (to reduce it) so the same must also be done to the account of that supplier in the Payables ledger so as to keep control account and total of payables balances in agreement. That amount must also be credited to both the receivables control account and the specific customer’s account (because that is the off-setting nature of contras).
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