Overview:

Handling contra accounts for suppliers who are also customers can be a complex but manageable task with the right approach. In Zumzum Financials, this issue is addressed by creating two distinct accounts within the system: one for the customer debtor account and another for the supplier debtor account, each with its unique account number. The management of contra entries is facilitated through the banking tab. To balance these accounts, transactions such as Cash Receipts and Supplier Payments are processed within the banking module. For example, when an amount is receivable and payable simultaneously from the same entity, you would record a Customer Receipt and a Supplier Payment for the same amount. These transactions are then reconciled during the bank reconciliation process. To streamline this, you can set up a ‘dummy’ bank account, termed ‘Contras,’ where these entries are posted. This approach ensures that the balance of this contra account remains zero, simplifying reconciliation. If invoices are of unequal amounts, additional payments are recorded through the usual banking procedures to settle any discrepancies. This method avoids the complications of posting non-existent entries and maintains clear, accurate financial records.

Issue: How to handle Contra accounts for Suppliers?

How to handle Contra accounts for Suppliers? (If you have a Supplier who is also a Customer.)

Solution

To handle this in Zumzum Financials, there would be 2 different accounts in the system to reflect one for the Customer debtor account (with its unique customer account number) and another for the Supplier debtor account (with its unique supplier account number).

You would handle the Contra entries via the banking tab. Cash Receipts and Supplier Payments would be handled as transactions via the banking module to each account. You should post a Customer Receipt from the customer and Supplier Payment to the supplier for the same amount. You would then reconcile these transactions on your bank reconciliation. If this happens often, you could create a ‘dummy’ bank account (call it Contras) and post the payment and receipt from this account. The account balance will always end up as zero – you can reconcile it if you wish. This avoids posting non-existent entries to the bank account.

So for example, if you have an outstanding purchase invoice for 5,000 and an outstanding sales invoice for 10,000 (for the same company) then the amount owed to you is 5,000 (since you decide to contra, rather than send the full amounts).

Step 1 (optional) – set up a new bank account and bank account nominal code

Step 2 – Record a payment against the purchase invoice

Step 3 – Record a payment against the sales invoice.

The balance on the contra bank account should remain at Zero. If all invoices are for the same value, no further action is required. If one of the invoices is for a higher value, you would record a payment against this in the normal way on your Bank tab.

Learn more about Supplier Relationship Management in Zumzum Financials.