How To: Simulate a Contra Account
Table Of Contents
Introduction
A contra transaction is used when the same business is both your customer and your supplier. Rather than making and receiving separate payments, the balances can be offset against one another.
For example:
- You have sold goods worth £600 to a customer.
- That same company has supplied goods or services to you worth £880.
- The £600 owed to you is offset against the £880 you owe them.
- This leaves a remaining balance of £280 payable to the supplier.
Khaos Control does not contain a dedicated contra account process, but the same accounting result can be achieved using SP Ledger entries and allocating the transactions appropriately.
Important: The approach described below is provided as guidance only. Before processing contra transactions, we recommend discussing the accounting treatment with your accountant to ensure it meets your business and reporting requirements.
Example Scenario
| Transaction | Value |
|---|---|
| Customer invoice raised | £600 |
| Supplier invoice received | £880 |
| Contra adjustment | £600 |
| Remaining amount owed to supplier | £280 |
Recording the Contra Transaction
Step 1: Create SP Ledger Credit Entries
Create two credit entries in the supplier's SP Ledger account.
For guidance on creating SP Ledger transactions, see How To: Enter a Single Line SP Ledger Entry.
Create:
- A credit for £600 against the appropriate Sales Nominal.
- A credit for £600 against the appropriate Purchase Nominal.
Tip: You may find it helpful to create a dedicated Contra nominal account using the Purchase system type to make contra transactions easier to identify and report on.
Step 2: Allocate the Transactions
- Open the customer/supplier account.
- Go to the Statement tab.
- Locate the contra credit in the Allocate From grid.
- Allocate the credit against the outstanding invoice in the Allocate To grid.
- Save the allocation.
This reduces the outstanding balances and effectively offsets the amount owed by each party.
Result
Once allocated:
- The customer debt is reduced by the contra value.
- The supplier balance is reduced by the same amount.
- Only the remaining balance requires payment.
- The transaction is reflected within your accounting records without moving cash between accounts.
Using the example above, the £600 customer debt is offset against the £880 supplier balance, leaving £280 still payable.
Additional Information
Contra transactions are commonly used where:
- Suppliers are also customers.
- Commission arrangements exist between businesses.
- Rebates or allowances are offset against outstanding invoices.
- Businesses regularly trade with one another in both directions.
Because accounting treatment can vary depending on business circumstances, the nominal accounts used may differ between organisations.