Most lines on a bank statement resolve into one of three voucher types, and for the majority the choice is obvious. Money left the account to pay someone: Payment. Money arrived from someone: Receipt.
The third one is where it goes wrong. Contra exists for movements between accounts the business already owns, and because those transactions look exactly like a payment on one statement and exactly like a receipt on another, they get booked as both. The result is a set of books that shows turnover the business never had.
The one test that settles it
Before choosing, ask a single question about the transaction: did the money leave the business, or just move inside it?
If the counterparty is somebody else, a supplier, a customer, a landlord, an employee, then value has genuinely entered or left the business and you want Payment or Receipt. If the counterparty is the business itself, another of its own bank accounts, its own cash in hand, its own overdraft facility, then nothing has entered or left. Only the location has changed. That is Contra.
Everything else about the decision follows from that. The direction of the money does not determine the voucher type; the identity of the other side does.
Pro tip
Say the transaction out loud with the counterparty named. "We paid Acme" is a Payment. "We moved our own money from current to cash" is a Contra. If naming the counterparty makes it sound like a transfer, it is one.
What Contra is actually for
Tally restricts Contra to movements between cash and bank accounts, which is precisely the set of cases where nothing has been earned or spent.
- Cash withdrawn from the bank for office use. The business has the same total; it is just in a different place.
- Cash deposited into the bank from the till.
- A transfer between two of the business’s own bank accounts, including a sweep into a fixed deposit and back.
- A transfer between a current account and an overdraft or cash credit account held by the same business.
Important
A transfer to the proprietor’s or a director’s personal account is NOT a Contra, however much it feels like moving your own money. The business and its owner are separate entities in the books. That transaction is drawings or a loan to a director, and treating it as a transfer hides a related-party item that has to be disclosed.
What booking it wrong actually costs
The reason this matters is not tidiness. A misclassified transfer produces specific, visible damage.
Turnover inflates. A lakh moved from the current account to the cash account, booked as a Payment out and a Receipt in, adds two lakhs of movement to accounts that should have seen none. Do that monthly and the turnover figure stops meaning anything, which matters for ratios, for limits and for anyone reading the financials.
The other side goes to Suspense. Booked as a Payment, the entry needs a party ledger, and there is no party. So it either lands in Suspense or, worse, someone creates a ledger called "Transfer" and the problem becomes permanent. That is one of the routes described in why imported entries land in Suspense.
Reconciliation doubles. The same rupees now appear on two bank statements, and both have to be reconciled, with the same item explained twice.
The cases that genuinely need thought
A handful come up often enough to be worth deciding once, as a firm, and applying consistently.
Bank charges and interest
Not a Contra. The bank is a third party providing a service, and the money has left the business. That is a Payment, and the tax treatment has its own trap: see GST on bank charges.
A cheque you deposited that bounced
Neither a fresh Receipt nor a Contra. The original Receipt is being reversed, so it belongs as a reversal against the same party, keeping the audit trail intact. Booking a new Payment to the customer implies you paid them.
Loan drawdowns and repayments
Not a Contra, even though a cash credit account is your own facility. Drawing on a loan creates a liability and repaying it discharges one. Both are Payments or Receipts against the lender.
Money in transit at a period end
A transfer initiated on the 31st that lands on the 1st is still a Contra, but it will sit unreconciled on both sides for a day. That is a genuine timing difference and belongs in the reconciliation, not in a correction. See the BRS format and what each line means.
Doing it at scale without deciding twice
On a single statement this is easy. Across a client base it becomes a consistency problem, because the same transfer has to be recognised on both accounts and by whoever happens to be entering that month.
Two habits help. First, keep a written list of the client’s own accounts, including the cash account and any facility, so anyone entering can check whether a counterparty is internal in two seconds rather than guessing. Second, name the accounts in a way that makes them obviously internal at a glance, so a transfer is recognisable from the narration alone.
Greenote handles the recognition part by classifying each line before you see it, and own-account transfers get separated onto their own sheets in the report rather than being mixed into receipts and payments. You review a short list of transfers instead of spotting them among three hundred rows.
Pro tip
Keep the client’s own-account list with the ledger master list, not in someone’s head. It is the same document that stops the same vendor being created twice, and it answers the internal-or-external question instantly.
Conclusion
The decision is not about which direction the money went. It is about who was on the other side. If it was somebody else, Payment or Receipt. If it was the business itself, Contra. If it was the owner personally, neither, and that is a disclosure question rather than a bookkeeping one.
Get that right and turnover stays honest, Suspense stays empty, and reconciliation halves.
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