Contra between Sales and Purchase Ledgers
How to post Contra entries between Sales and Purchase Ledgers.
If you have a Customer who also sells to you, you may wish to cancel out any monies owing by this Customer against monies that you owe them. It is possible to do this by posting Adjustments to both the Customer and the Supplier.
In the Nominal Ledger create a Nominal Account for Contra Entries. We suggest using the Major Heading of 12.
In the Sales Ledger create an Analysis Code for Contra Entries. We suggest that this is set up as a Discount type analysis. It must debit the Contra Entries Nominal Account and credit the Sales Control Account.
In the Purchase Ledger create an Analysis Code for Contra Entries. We suggest that this is set up as a Discount type analysis. It must debit the Purchase Control account and credit the Contra Entries Nominal Account.
Example:
A Customer owes you £300.00, however you also owe them £100.00.
In the Sales Ledger enter an Adjustment to Decrease Customer Balance for £100 using the Contra Analysis code. This will reduce the balance on the Customer Record and the Sales Control Account.
In the Purchase Ledger enter an adjustment to Decrease Supplier Balance for £100 using the Contra Analysis code. This will reduce the balance on the Supplier Record and the Purchase Control Account.
The balance on the Contra Entries Nominal Account will be 0.00 as the two entries will have cancelled each other out.
There will be no effect on the VAT Control Account as VAT is still chargeable on both the Sales and Purchase invoices.