Contra Account Definition: Types and Example

Define Contra Asset Account

Outstanding SharesOutstanding shares are the stocks available with the company’s shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner’s equity in the liability side of the company’s balance sheet. These accounts can be listed based on the respective asset, liability, or equity account to reduce their original balance. The contra equity account reduces the total amount of shareholders’ equity. Contra assets are credit accounts that carry their own values that when combined with the value of the paired account, informs the balance sheet. Learn why contra accounts, when utilized correctly along with a paired account, are a crucial component of accurate accounting and financial review. An allowance for doubtful accounts is a contra-asset account that reduces the total receivables reported to reflect only the amounts expected to be paid.

  • Contra revenue account, which is used to record the net amounts and usually has a debit balance, as opposed to the revenue account that records the gross amounts.
  • Those who are struggling with recording contra accounts may benefit from utilizing some of the best accounting software currently available.
  • Contra asset accounts include allowance for doubtful accounts and accumulated depreciation.
  • While accumulated depreciation is the most common contra asset account, the following also may apply, depending on the company.
  • The allowance for doubtful accounts appears on the balance sheet and reduces the amount of receivables.

Transactions made to contra accounts are presented on a company’s financial statements under the related account. Contra accounts are important because they allow a company to follow the matching principle by recording an expense initially in the contra asset account. The contra asset account is later reduced when the expense is recorded. Business owners should understand the functions of contra accounts and their importance to maintaining accurate financial records.

Examples of Contra Assets

A contra revenue account carries a debit balance and reduces the total amount of a company’s revenue. The amount of gross revenue minus the amount recorded in the contra revenue accounts equal a company’s net revenue. A transaction is made under the sales return account when a customer returns a product to the company for a refund. Sales allowance represents discounts given to customers to entice them to keep products instead of returning them, such as with slightly defective items. The sales discount account represents the discount amount a company gives to customers as an incentive to purchase its products or services.

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Accumulated depreciation

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Define Contra Asset Account

At the same time, depreciation for the van at the end of the year ended up at $500. And the depreciation for the office equipment ended up at $1,000.

Does Issuing Common Stock for the Purchase of a Company Affect Retained Earnings?

Credit BalanceCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance.

What Are the Different Types of Contra Accounts?

There are four key types of contra accounts—contra asset, contra liability, contra equity, and contra revenue. Contra assets decrease the balance of a fixed or capital asset, carrying a credit balance. Contra liabilities reduce liability accounts and carry a debit balance. Contra equity accounts carry a debit balance reduce equity accounts. Contra revenue accounts reduce revenue accounts and have a debit balance.

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