Contra Account
An account that offsets the balance of a related account, such as accumulated depreciation.
A contra account carries a balance opposite to its paired account's normal balance, reducing the gross amount to a net figure. Common examples are accumulated depreciation (contra to fixed assets), allowance for doubtful accounts (contra to AR), and sales returns (contra to revenue). They provide transparency by showing both original values and reductions separately.
Example
Equipment costing $100,000 has $30,000 in accumulated depreciation—the balance sheet shows Equipment: $100,000, less Depreciation: ($30,000), net book value: $70,000.
Why It Matters for Your Business
Contra accounts give you more detailed financial information by showing original values alongside total adjustments, which is valuable for asset management.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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