Contra Asset Examples, How a Contra Asset Account Works

For example, when a line item on your balance sheet presents the balance of accounts receivable, report the value of allowance of uncollectible accounts below the accounts receivable line. Be sure to enter the contra account on the opposite column of the account they’re offsetting. If contra assets appear in the credit column, record contra liabilities on side. A contra account is a general ledger account that offsets the balance of a corresponding account with which it’s paired.

Contra Revenue Sales Returns Illustration

That is because some of the bonds are issued at a discount, so this reduces the balance of their bonds payable. A contra liability is an account in which activity is recorded as a debit balance and is used to decrease the balance of a liability. Contra Liability a/c is not used as frequently as contra asset accounts. It is not classified as a liability since it does not represent a future obligation. Properly documenting these contra accounts in your ledger can sometimes feel counter-intuitive since they operate in an opposite manner from their parent accounts.

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At Zeni, we keep it simple for you to record all of your contra revenue in one dedicated place and view the changes to your accounts over time AND in real-time. Our AI-powered tool gives you daily access to your company’s finances while our expert finance team double-checks the numbers every step of the way. The monthly accounting close process for a nonprofit organization involves a series of steps to ensure accurate and up-to-date financial records.

Contra equity account

If you debit the contra account, ensure that you offset the related account with a credit balance. In essence, contra accounts allow you to report your firm’s gross and net amounts. These accounts also ensure that you follow the matching principle in accounting, which states that you record expenses in the same period you incur them. The equity section of the balance sheet is where the shareholder’s claims to assets are reported. The main contra equity account is treasury stock, which is the balance of all stock repurchased by the company.

Contra liability account example

Allowance for uncollectible accounts, or allowance for doubtful accounts, is one of the most common contra current asset accounts. The dollar balance in the allowance for uncollectible accounts is the amount you don’t expect to collect, and this offsets the amount you report in accounts receivable. A normal asset has a debit balance, while a contra asset sits against this to show the net balance of both assets on your financial statement. Are you looking for a way to account for accumulated depreciation, returned merchandise, or damaged inventory? You can use contra accounts to record the goods your customers return, inventory that gets damaged, and equipment depreciation.

Contra revenue accounts appear near the top of the income statement, as a deduction from gross revenue. If the amounts of these line items are minimal, they may be aggregated for reporting purposes into a single contra revenue line item. You can also record contra revenue within the sales account, but this means that it will be buried within the total amount of revenue reported, so that management cannot easily determine the amount of contra revenue. what is a contra account If your company has minimal contra revenue activity, it is acceptable to record these transactions within the revenue account. As can be seen using the two accounts, allows information about the original sale to be maintained on the revenue account, and details of the sale returns to be maintained on the sales returns contra revenue account. This type of account could be called the allowance for doubtful accounts or a bad debt reserve.

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Sometimes, it is important to keep the original balance of the accounts and create the contra accounts to be able to calculate the net value of the account. Whenever the balance of an account needs to be reduced in a company’s ledger, it is not always applicable to credit the account if it is an asset or debit the account if it is a liability. Hence, the term valuation account represents all types of balance sheet accounts related to their corresponding balance sheet accounts. This helps the firms to evaluate the book value of their assets and liabilities.

Fortunately, the seat vendor offered an early payment discount of 5%, meaning that when Show-Fleur paid off its full credit note within the first 30 days, it recouped $30 thousand in savings. — Of the four newcomers from the Pac-12, only Utah produced above-median revenue growth (5.7 percent). Meanwhile, the Cyclones’ expenses increased by just 4.9 percent annually over the same span, compared to the median Big 12 expense growth of 5.6 percent. Iowa State’s revenue growth (before institutional support) increased by 4.9 percent annually from 2019 through — above the Big 12 median of 4.5 percent annual growth.

Taking a closer look at contra asset accounts

• The most common contra type, contra assets, records the loss in value of any asset accounts listed in your general ledger.
• Simply hit Control + N under the Chart of Accounts or Edit, then click New (to create a new account).
• Consider a business that offers an early payment discount to its customers, cutting their invoiced total by 3% if they pay within 1 week of invoicing.
• Contra revenue accounts reduce revenue accounts and have a debit balance.
• Examples of contra expense accounts include Purchase Returns, Purchase Discounts, and Advertising Reimbursements.
• A contra asset account is an account in the balance sheet that offsets the balance of a regular asset account.
• Contra accounts act like regular accounts on the balance sheet but have a unique purpose.