A contra account is an account used in a general ledger to reduce the value of a related account. They are useful to preserve the historical value in a main account while presenting a decrease or write-down in a separate contra account that nets to the current book value.

What is an example of a contra account?

An account with a balance that is the opposite of the normal balance. ... Other examples include (1) the allowance for doubtful accounts, (2) discount on bonds payable, (3) sales returns and allowances, and (4) sales discounts. The contra accounts cause a reduction in the amounts reported.

What is a contra account list?

A contra account is an account with a balance opposite the normal accounts in its category. Contra accounts are usually linked to specific accounts on the balance sheet and are reported as subtractions from these accounts. In other words, contra accounts are used to reduce normal accounts on the balance sheet.

What is a contra entry in accounting?

A contra entry is recorded when the debit and credit affect the same parent account and resulting in a net zero effect to the account. These are transactions that are recorded between cash and bank accounts.

What is a contra account?

A contra account is an account used in a general ledger to reduce the value of a related account. They are useful to preserve the historical value in a main account while presenting a decrease or write-down in a separate contra account that nets to the current book value.

Contra accounts explained

28 related questions found

What are contra payments?

A contra account makes allowances for payments in the form of products or services rather than cash.

What accounts are contra assets?

Types of contra asset accounts

• Accumulated depreciation.
• Accumulated depletion.
• Obsolete inventory reserves.
• Allowance for doubtful accounts.
• Trade accounts receivable.
• Discount on notes receivable.

What type of account is contra equity?

A contra equity account is a stockholders' equity account with a negative balance. This means that the account has a net debit balance. This account reduces the total amount of equity held by a business.

What are examples of Contra equity accounts?

contra equity account definition. An owner's or stockholders' equity account with a debit balance instead of the normal credit balance. Examples include the owner's drawing account, a dividend account, and the treasury stock account.

Is drawings a contra account?

A drawing account is a contra account to the owner's equity. The drawing account's debit balance is contrary to the expected credit balance of an owner's equity account because owner withdrawals represent a reduction of the owner's equity in a business.

How do I create a contra account?

If contra assets appear in the credit column, record contra liabilities on side. You may use accounting software packages, such as QuickBooks Online to set up contra accounts. Simply hit Control + N under the Chart of Accounts or Edit, then click New (to create a new account).

Is treasury stock a contra account?

Treasury stock reduces total shareholder's equity on a company's balance sheet, and it is therefore a contra equity account. There are two methods to record treasury stock: the cost method and the par value method.

Is an owner distribution a contra account?

Examples of contra equity accounts include the treasury stock account, the owners' drawing account, and a dividend account. ... The treasury stock is not an asset, per se. The payment of cash to existing owners is a distribution which increases the contra equity account dubbed “treasury stock account”.

Is inventory a contra account?

What is a Contra Inventory Account? A contra inventory account is a general ledger account that is paired with the inventory account, and which contains a negative balance that represents a reserve for obsolete or damaged goods.

What is contra revenue account?

Contra revenue accounts include sales discounts, sales returns, and sales allowances, which all by nature have a debit balance, contrary to revenues. Contra revenues are a deduction from the gross revenues reported by an entity, in order to arrive at net revenues.

What does Contra stand for?

contra- ¹. a prefix meaning “against,” “opposite,” “opposing”: contradistinction, contraindicate.

Is contra asset a current asset?

Accumulated depreciation is not a current asset account. Accumulated depreciation accounts are asset accounts with a credit balance (known as a contra asset account). ... It appears on the balance sheet as a reduction from the gross amount of fixed assets reported.

Are dividends a contra account?

Liabilities & Equity

There is an exception to this rule: Dividends (or withdrawals for a non-corporation) is an equity account but it reduces equity since the owner is taking equity from the company. This is called a contra-account because it works opposite the way the account normally works.

Is bad debt a contra account?

Your allowance for bad debts is a contra-asset account, which means that it will appear on your balance sheet alongside all of your other asset accounts.

What are two examples of contra revenue accounts?

Two examples of contra revenue accounts are:

• Sales Returns and Allowances.
• Sales Discounts.

What is a contra asset account used for?

A contra asset is a negative asset account that offsets the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

What does Contra mean in business?

A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification. The use of a contra account allows a company to report the original amount and also report a reduction so that the net amount will also be reported.

What is a contra deal in business?

When parties decide to barter or exchange goods and/or services without cash changing hands, this is sometimes described as a 'contra' deal.

Can a company vote its own shares?

Voting Rights of Common Stock Ownership

Some companies grant stockholders one vote per share, thus giving those shareholders with a greater investment in the company a greater say in corporate decision-making. Alternatively, each shareholder may have one vote, regardless of how many shares of company stock they own.

Can a company have shares in itself?

Successive Companies Acts have made it possible for companies to buy their own shares in a number of ways. ... Any company may make an 'off-market purchase' of its shares by contract with one or more particular shareholders. The contract must be approved by an ordinary resolution in general meeting.