Double Entry Model

Contra Entries between Customer and Supplier Accounts

A contra entry (also called a set-off) arises when the same business is both a customer and a supplier. Instead of both parties making separate payments to each other, the two balances are offset — only the net difference is settled in cash.

This is different from the cash book contra (transferring cash between cash and bank columns). Confusing the two is a common exam mistake.

When It Arises

A business, Harston Ltd, owes us £800 (it is a credit customer — SLCA balance). We also owe Harston Ltd £300 as a supplier (PLCA balance).

Rather than:

• Harston paying us £800, then us paying Harston £300

We agree to set off £300 against both balances:

• Harston pays us only the net £500

Double Entry

The PLCA is debited (reducing what we owe) and the SLCA is credited (reducing what is owed to us).

Effect on Control Accounts

After the contra:

• SLCA reduces by the set-off amount (£300): Harston now owes us £500
• PLCA reduces by the set-off amount (£300): we no longer owe Harston anything
• Only £500 needs to change hands

Key Rules

• No cash or bank entry is made for the set-off portion itself — no cash changes hands for the cancelled amount
• The same amount is debited in the PLCA and credited in the SLCA
• The individual customer and supplier ledger accounts are also updated
• The entry is recorded in the general journal (it is a non-routine, non-cash entry)