Contra entry
A contra entry is a bookkeeping transaction that offsets one balance against another — typically a debt owed to a supplier against a debt owed by that same party as a customer — so that only the net amount changes hands.
Also: contra
A contra entry arises when two parties owe each other money and agree to cancel out the overlapping amounts rather than exchange two separate payments. The most common example in small-business bookkeeping is a supplier who is also a customer: if you owe them £800 and they owe you £500, you agree that they will pay you the net £300 and no further funds need to change hands.
Why contras are awkward in Xero
Xero’s bank feed works by matching bank statement lines to transactions. A contra, by definition, produces no bank line — or a reduced one — so there is nothing for the automated matching logic to hook on to. The correct method is to raise the offset manually: allocate the supplier’s bill against the customer’s invoice using a clearing account or a direct credit, so both balances close and the accounting remains accurate without waiting for a cash movement.
If the net amount does appear on your bank statement, the remaining £300 (in the example above) needs to reconcile against only the net portion of the debt, not the full invoice. Leaving either side open inflates both debtors and creditors on the balance sheet and can distort your VAT position if the invoices straddle different VAT periods.