Contra Account Definition, Example

contra expense account

This method uses the initial purchase value and subtracts the accumulated depreciation value for the time period to result in the total value of the equipment after its use. DrCrEquipment500ABC Computers 500The journal entry “ABC Computers” is indented to indicate that this is the credit transaction. It is accepted accounting practice to indent credit transactions recorded within a journal. The Profit and Loss Statement is an expansion of the Retained Earnings Account.

A Contra Accounts is a general ledger account that is shown on the Financial Statements that is used to reduce the balance of its paired account. Goodwill is an intangible asset resulting from the purchase of an entity for more than its fair market value. The concept of goodwill is used when an entity is acquiring another entity.

The company doesn’t expect to receive payment and has already adjusted for the doubtful collection on this customer account What’s the correct entry to remove the outstanding balance? Contra accounts are used in conjunction with related accounts to reduce the value and account for certain assets and liabilities. Unless you’re a sole proprietor using a single-entry bookkeeping method, you’re going to want to use them.


A contra account is an account used in a general ledger to reduce the value of a related account. Create a Journal where credit card fees & interest will be recorded during reconciliation. Liabilities AccountsLiability is a financial obligation as a result of any past event which is a legal binding. Settling of a liability requires an outflow of an economic resource mostly money, and these are shown in the balance of the company. Purchases Returns account which is maintained against Purchases account is contra-expense account. As the name suggests Contra account is any account which is opposite in nature with respect to a certain account i.e. its balance is opposite to the balance of an account against which contra account is maintained.

So, the company’s total value of receivables results in $95,000, and Power Manufacturers may then adjust this calculation in their financial records as they receive more credit sales. Although a bond discount is a contra liability account, it cannot be considered as a liability since no future obligation can be expected from it. Define accrued expenses and revenues, explore the types of accrued expenses and revenues, and examine practical examples of these two concepts.

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. 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 recorded when the buying price is more than the sum of the… Best Of We’ve tested, evaluated and curated the best software solutions for your specific business needs. Applicant Tracking Zoho Recruit Zoho Recruit combines a robust feature set with an intuitive user interface and affordable pricing to speed up and simplify the recruitment process. Each of the following accounts is either an Asset , Contra Account , Liability , Shareholders’ Equity , Revenue , Expense or Dividend account.

  • Contra asset accounts allow users to see how much of an asset was written off, its remaining useful life, and the value of the asset.
  • A general ledger is the record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance.
  • Allowance for doubtful accounts represents the percentage of accounts receivable a company believes it cannot collect.
  • The asset account above has been added to by a debit value X, i.e. the balance has increased by £X or $X.
  • A contra account is a general ledger account that offsets the balance of a corresponding account with which it’s paired.

Review the process for recording sales returns and allowances with examples. When accounting for assets, the difference between the asset’s account balance and the contra account balance is referred to as the book value. Sometimes, the same person may be a debtor as well as a creditor for the business.

What Is The Journal Entry If A Company Pays Dividends With Cash?

Users might not remember which service they used to sign up for, or they used one at all. On the other hand, if users choose the wrong provider, rather than signing in to the service, they probably end up signing up unintentionally, thereby creating a new account. A site or app capable of perfectly matching accounts from different services but there is no complete guarantee of whether a social media account belongs to the same person. Therefore, for solving multiple log-in problems, users should keep logged in until they explicitly sign out. Bad debt is an expense that a business incurs once the repayment of credit previously extended to a customer is estimated to be uncollectible. Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life to account for declines in value over time.

  • It has more than 200 million users when it comes to sharing mail.
  • Contra liability accounts are not as popular as contra asset accounts.
  • The income statement could simply report the net amount of the expense, which is $8,000 ($10,000 minus $2,000).
  • You have to enter the already provided alternate email account and phone number so that Yahoo mail can verify your identity using a one-time password.
  • The most known type of a contra asset account is the Accumulated Depreciation which reduces the amount of Fixed Assets.
  • Account adjustments are entries out of internal transactions within a business, which are entered into the general journal at the end of an accounting period.

Allowance for doubtful accounts, or a debt reserve, is another type of contra asset account. This account focuses on outstanding debts a company can’t recover or doesn’t expect to recover. The main purpose is to show the true revenue because without this allowance, a company’s balance sheet or income sheet may be inaccurate. These transactions are reported in one or more contra revenue accounts, which usually have a debit balance and reduces the total amount of the company’s net revenue. In this article, you will learn what a contra asset account is, the types of contra asset accounts a business may have as well as an example of how common types of contra asset account balances are calculated.

How To Decrease Notes Payable In Financial Statements

The definition of a cash payment journal is quite literal; it is a journal used to record all payments made using cash. Learn what columns go into a cash payment journal and an example of a cash payment journal of a quilting business. In other words, contra revenue is a deduction from gross revenue, which results in net revenue.

contra expense account

A is a general ledger expense account that will intentionally have a credit balance . In other words, this account’s credit balance is contrary to the usual debit balance for an expense account. Expense accounts and the contra expense accounts with which they are paired are typically combined in the income statement in a single line item, so that readers are not aware that a contra account even exists. This type of contra account is listed in conjunction with an inventory asset. For example, the asset account may have $5,000 worth of inventory. If that becomes unsellable, you would credit an allowance for $5,000 obsolete. This essentially erases the asset on your financial statement, leaving you with a total amount of $0.

How Are Contra Accounts Used And Reported?

Examples of contra liabilities are Discounts on Bonds and Notes Payable and Short-Term Portion of Long-Term Debt. Now, for contra revenue accounts there are sales discounts, sales allowances, or sales returns. Contra assets and contra liabilities contra expense account are listed on a company’s balance sheet and carry balances opposite of their related accounts. Unlike regular assets and liabilities, contra assets typically keep a credit balance and contra liabilities typically keep a debit balance.

Jason contributed $8,100 cash and all of his landscaping equipment. Prepare the journal entries required to record the investment that each partner contributed in creating the partnership. Trade accounts receivable refer to an amount that a company bills to its clients when delivering goods or services. These billings may usually be documented on invoices, which are then summarized in an aging report for all the business’s accounts receivable.

contra expense account

The net effect of the two accounts is a reduced total benefits expense for the company. Contra expense accounts have a natural credit balance, as opposed to the natural debit balance of a typical expense account. Of course, these two main accounts have a number of different subsets. For example, a contra asset account used in conjunction with accounts receivable is called an allowance for doubtful accounts or bad debt reserve. In this case, the contra account might represent outstanding customer debts that you probably won’t be able to collect.

Although the accounts receivable is not due in September, the company still has to report credit losses of $4,000 as bad debts expense in its income statement for the month. If accounts receivable is $40,000 and allowance for doubtful accounts is $4,000, the net book value reported on the balance sheet will be $36,000. When a contra asset account is first recorded in a journal entry, the offset is to an expense.

Accumulated deprecation represents the cumulative amount of depreciation expense charged against an asset. There are multiple types of contra asset accounts that can be used to show a company’s true financial picture on a balance sheet. One of these is the accumulated depreciation account, which marks the total amount of a depreciation expense of a specific asset. This should be used when a company has assets that have lost value over time because it allows a company to show both the cost of the asset and the actual value of the asset on a balance sheet. Allowance for doubtful accounts represents the percentage cash flow of accounts receivable a company believes it cannot collect. Examples of contra liabilities include a discount on notes or bonds payable.

For example, if a piece of heavy machinery is purchased for $10,000, that $10,000 figure is maintained on the general ledger even as the asset’s depreciation is recorded separately. Purchases Charged to Your Card When you make a purchase with your card enter it like a Vendor Check, as though you were paying the vendor, but be sure to select your contra asset as the Checkbook.

When the normal balance of an asset is a debit, a contra account’s normal balance would be a credit, and when a liability’s normal balance is a credit, the contra account is a debit. BondsA bond is financial instrument that denotes the debt owed by the issuer to the bondholder. These are also negotiable and the interest can be paid monthly, quarterly, half-yearly or even annually whichever is agreed mutually. Peggy James is a CPA with 8 years of experience in corporate accounting and finance who currently works at a private university. Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on Most companies rely heavily on the profit and loss report and review it regularly to enable strategic decision making.

Again, accumulated depreciation reduced fixed and capital asset balances. Apple breaks out its amount of property, plant, and equipment (PP&E) and then lists its accumulated deprecation that reduces the PP&E figure. Another description of a contra expense account is an account that reduces or offsets the amounts reported in another general ledger expense account.

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