Explain bank transactions using the contra account
This article describes how to explain bank transactions using the contra account.
The contra account is a holding account designed for situations where money comes into your bank account and then goes straight back out, or vice versa. For example, a bounced cheque or money paid to the business in error and then refunded.
Once the bank transactions have been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you’ll need to follow the steps below to explain the money in and money out of your bank account using the appropriate ‘Type’ and ‘Category’.
Please note that you’ll need to have level 6 access or above to your FreeAgent account to explain bank transactions.
Explaining the money paid into your bank account
You’ll need to explain the bank transaction paid into your bank account as a receipt into the contra account.
Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.
Choose the relevant bank account from the list.
Select the relevant transaction.
Select ‘Other Money In’ from the transaction ‘Type’ drop-down menu.
Select ‘Receipt into Contra Account’ from the transaction ‘Category’ drop-down menu.
You can enter a description so that you can identify what the transaction relates to.
Select ‘Explain Transaction’ to complete the process.
Explaining the money paid out of your bank account
You will need to explain the bank transaction paid out of your bank account as a payment from the contra account.
To do this, navigate to the ‘Banking’ tab at the top of the screen, select ‘Bank Accounts’ from the drop-down menu and choose the relevant bank account from the list.
Select the relevant transaction.
Select ‘Other Money Out’ from the transaction ‘Type’ drop-down menu.
Select ‘Payment from Contra Account’ from the transaction ‘Category’ drop-down menu.
You can enter a description so that you can identify what the transaction relates to.
Select ‘Explain Transaction’ to complete the process.
Once both the money in and money out transactions have been explained using the contra account as described above, the balance on the contra account will return to zero.