Article ID: 2024668 Last Updated: 22 August 2023
You may have a situation whereby a customer is also a supplier and you wish to 'contra' what you owe to them with what they owe you.
Use a 'Contra Bank Account' to both 'pay' the supplier and 'receive' payment from the customer. The values paid and received reflect the value that you wish to 'contra' between the customer/supplier. The Contra Bank will temporarily hold notional funds to facilitate the transfer between customer and supplier accounts.
Once the contra transactions are complete, the customer and supplier balances will have been reduced and the contra bank account will be zero.
Let’s assume that Gardener’s Paradise is a customer that owes us £500 for materials that we sold to them.
Gardener’s Paradise is also a supplier that maintains our factory lawns and they recently invoiced us £150 for their last work performed.
We want to reduce Gardener’s Paradise’s £500 customer balance by their £150 supplier invoice.
Go to the Accounts menu> Accounts List and check if you have a Contra Bank Account (or similar) already setup.
If required, setup a new bank account by clicking the New button:
If they've not already been recorded, enter both the sales and purchase invoices to and from the customer/supplier.
In our example, Gardener’s Paradise is now a debtor owing us £500, and a creditor to whom we owe £150.
Go to the Sales menu> Receive Payments window.
In our example, we want to reduce Gardener’s Paradise balance by £150, so we record a receipt of £150 into the Contra Bank Account and allocate it to the relevant invoice(s) you wish to settle.
Set the Date to the date on which you consider the invoice(s) to have been settled. Record the receipt.
Result: The sales invoice balance has been reduced by the amount received and the Contra Bank Account now contains £150 of 'funds' which we can use to settle the supplier invoice(s).
Go to the Purchases menu> Pay Suppliers window.
Record a payment of £150 from your Contra Bank Account and allocate it to the relevant invoice(s) that you wish to settle.
Set the Date to the date on which you consider the invoice(s) to have been settled. Record the payment.
Result: The balance of the purchase invoice(s) has been reduced by the amount paid and the Contra Bank Account has returned to a zero balance.