what is a contra account course hero

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.

Full Answer

Which of the following is a contra account?

Which of the following is a contra account? Accumulated Depreciation is a contra asset account. It is located in the long-term asset section of the balance sheet under the heading of property, plant, and equipment.

What is a contra record?

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 contra and adjunct?

An adjunct account is a valuation account from which credit balances are added to another account. The concept of an adjunct account can be contrasted with the concept of a contra account, which decreases the amount of a liability account through a debit entry.

What is contra AR?

A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. This type of asset account is referred to as "contra" because normal asset accounts might include a debit, or positive, balance, and contra asset accounts can include a credit, or negative, balance.

What is a contra account?

A contra account is used in a general ledger to reduce the value of a related account when the two are netted together. A contra account's natural balance is the opposite of the associated account. If a debit is the natural balance recorded in the related account, the contra account records a credit.

What is a contra asset account?

What is a Contra Asset Account? In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

What is a contra equity account?

What is a Contra Equity Account? 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.

Is bonds payable a contra account?

Discount on bonds payable is a contra account to bonds payable that decreases the value of the bonds and is subtracted from the bonds payable in the long‐term liability section of the balance sheet.

Is Accumulated depreciation a contra account?

In other words, accumulated depreciation is a contra-asset account, meaning it offsets the value of the asset that it is depreciating. As a result, accumulated depreciation is a negative balance reported on the balance sheet under the long-term assets section.

How do you create a contra account?

How do I set up a contra account or control the natural balance of a GL account in Quickbooks Online?Go to Accounting on the left pane.Select Chart of Accounts.Click New on the upper right.Select the Account Type, Detail Type, and Name of the account.Click Save and Close.

What is a contra asset account quizlet?

Contra-asset account. An account with a credit balance that is offset against or deducted from an asset account to produce the proper balance sheet amount for the asset.

Is drawings a contra account?

A drawing account acts as a contra account to the business owner's equity; an entry that debits the drawing account will have an offsetting credit to the cash account in the same amount.

How do you record contra entry?

To record a contra entry, you must record a payment against the sales and purchase invoices. However, as no money is being exchanged for the contra entry, these transactions shouldn't appear on your current account.

What is the purpose of contra entry?

Q: What is the purpose of a contra entry? Ans: A contra entry represents withdrawals and deposits from the bank and cash accounts and should indicate where the cash came and where it has gone. These entries affect both the bank and cash accounts and should indicate the effects as a contra entry on both these accounts.

What is contra entry give two examples?

Contra entry is a transaction which involves both cash and bank. Both debit aspect and credit aspect of a transaction get reflected in the cash book. For example: Cash received from debtors and deposited into bank.

What is a contra expense?

A contra expense is an account in the general ledger that is paired with and offsets a specific expense account. The account is typically used when a company initially pays for an expense item, and is then reimbursed by a third party for some or all of this initial outlay.

Definition of Contra Account

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.

Examples of Contra Accounts

To illustrate, let's use the contra asset account Allowance for Doubtful Accounts. Since it is a contra asset account, this allowance account must have a credit balance (which is contrary to the debit balances found in asset accounts). The Allowance for Doubtful Accounts is directly related to the asset account entitled Accounts Receivable.

What Is a Contra Account?

A contra account is used in a general ledger to reduce the value of a related account when the two are netted together. A contra account's natural balance is the opposite of the associated account. If a debit is the natural balance recorded in the related account, the contra account records a credit. For example, the contra account for a fixed asset is accumulated depreciation .

Why is a contra account important?

Contra accounts are used to reduce the original account directly, keeping financial accounting records clean. This allows for the easy determination of historical costs. This is particularly important for contra asset accounts. The difference between an asset's balance and the contra account asset balance is the book value.

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.

What are some examples of contra accounts?

Key examples of contra accounts include accumulated deprecation and allowance for doubtful accounts. 1:39.

What is the difference between the asset's account balance and the contra account balance?

When accounting for assets, the difference between the asset's account balance and the contra account balance is referred to as the book value. There are two major methods of determining what should be booked into a contra account.

Why do accountants use contra accounts?

Accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean. If a contra account is not used, it can be difficult to determine historical costs, which can make tax preparation more difficult and time-consuming.

Why is keeping the original dollar amount intact in the original account and reducing the figure in a separate account transparent?

By keeping the original dollar amount intact in the original account and reducing the figure in a separate account, the financial information is more transparent for financial reporting purposes. 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.

What is a contra account?

Contra Account is an opposite entry passed to offset the balances of related original account in the ledger and helps the organization to retrieve the original amount and the amount of decrease in the value, thereby presenting the net balances of the account. It is a general ledger account with a purpose to have its balance to be the opposite ...

Why are Contra Accounts Important?

It facilitates easy retrieval of the original amount and the actual decrease , which helps in understanding the net balance. It allows a business to present the net value based on the reduction made on the original amount.

What are some examples of contra liability accounts?

The examples of contra liability account include: Discount on bonds payable – This is the difference between the amount of cash a company receives when issuing bonds. Bonds A bond is financial instrument that denotes the debt owed by the issuer to the bondholder.

What is a contra liability?

A liability that is recorded as a debit balance is used to decrease the balance of a liability. The balance of a contra liability account is a debit balance. This account decreases the value of the 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.

What is a contra balance?

The balance of a contra asset account#N#Contra Asset Account A contra asset account is an asset account with a credit balance related to one of the assets with a debit balance. When we add the balances of these two assets, we will get the net book value or carrying value of the assets having a debit balance. read more#N#is a credit balance. This account decreases the value of a hard asset. This account is not classified as an asset since it does not represent a long term value. It is not classified as a liability since it does not constitute a future obligation.

What is a general ledger account?

It is a general ledger account with a purpose to have its balance to be the opposite of the original balance for that account. It is linked to specific accounts and is reported as reductions from these accounts.

Does a contra revenue account have a debit balance?

A contra revenue account always has a debit balance. read more. account. 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. The examples of contra revenue account.

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What is a contra account?

Definition. 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 liability account?

Contra Liability Account – A contra liability account is a liability that carries a debit balance and decreases other liabilities on the balance sheet. An example of this is a discount on bonds payable. Contra Equity Account – A contra equity account has a debit balance and decreases a standard equity account.

What is an asset account that has a debit balance?

Equipment is depreciated over its useful. This depreciation is saved in a contra asset account called accumulated depreciation. The accumulated depreciation account has a credit balance and is used to reduce the carrying value of the equipment. The balance sheet would report equipment at its historical cost and then subtract the accumulated depreciation.