Contra entries are passed only whena)Double-column cash book is prepar...
Three column cash book since contra is appearad only there existing two entries at once in both debit and credit side in three column cash book only
Contra entries are passed only whena)Double-column cash book is prepar...
Three-column cash book is prepared
In accounting, contra entries are passed when transactions involve both cash and bank accounts. These entries are recorded in a three-column cash book, which includes separate columns for cash, bank, and discount. Here's why contra entries are passed only when a three-column cash book is prepared:
- Separate columns: The three-column cash book allows for the segregation of cash transactions, bank transactions, and discounts. This segregation is essential for accurately recording contra entries involving both cash and bank accounts.
- Clarity and organization: By using a three-column cash book, accountants can maintain clarity and organization in recording different types of transactions. Contra entries can be easily identified and recorded in the appropriate columns.
- Matching principle: The use of a three-column cash book aligns with the matching principle in accounting, which requires expenses to be matched with revenues in the same accounting period. Contra entries involving cash and bank transactions can be accurately matched and recorded in the respective columns.
- Accuracy and reconciliation: Keeping separate columns for cash and bank transactions in the cash book helps ensure the accuracy of contra entries. It also facilitates the reconciliation of cash and bank balances, which is crucial for maintaining the integrity of financial records.
In conclusion, contra entries are passed only when a three-column cash book is prepared because it provides the necessary structure and organization for recording transactions involving both cash and bank accounts. This practice ensures accuracy, clarity, and adherence to accounting principles.