What is a Contra Revenue Account?

The accumulated depreciation account has a credit balance and is used to reduce the carrying value of the equipment. So for example there are contra expense accounts such as purchase returns, contra revenue accounts such as sales returns and contra asset accounts such as accumulated depreciation. Contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Contra asset accounts are recorded with a credit balance that decreases the balance of an asset.

Chart of Accounts Listing of Typical Contra Accounts:

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What are the Five Types of Contra Accounts?

Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Accumulated depreciation reflects the reduction in value of a fixed asset. Properly documenting these contra accounts in your what is a contra account ledger can sometimes feel counter-intuitive since they operate in an opposite manner from their parent accounts. Consider an asset account, where the values are listed as debits, and the account itself will present a positive total.

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• The difference between an asset’s account balance and the contra account balance is known as the book value.
• It will debit Accounts Receivable for $100,000 and will credit Sales for $100,000.
• Contra Accounts serve as a reduction to the balance of their corresponding accounts to find their net values.
• This would let users of the financial statements calculate the book value of the liability.
• Similarly, if the parent account lists entries as debits, the contra account will appear as a credit.

Example #1: Revenue Contra Account

• When the amount is material, the line item is typically presented separately on the balance sheet, below the liability account with which it is paired.
• These accounts will typically help track sales discounts, product returns, and allowances (e.g., a price reduction for a good with minor defects).
• In case a customer returns a product, the company will record the financial activity under the sales return account.
• The following are examples of commonly-used contra asset accounts you could create to better understand your business financials.
• To compensate for those potential deadbeat customers, you can use a Bad Debts account to serve as a contra for your A/R.

A contra liability is a general ledger account with a debit balance that reduces the normal credit balance of a standard liability account to present the net value on a balance sheet. Examples of contra liabilities are Discounts on Bonds and Notes Payable and Short-Term Portion of Long-Term Debt. Contra Liability Account – A contra liability account is a liability that carries a debit balance and decreases other liabilities on the balance sheet.

Contra accounts provide more detail to accounting figures and improve transparency in financial reporting. Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University. Examples of deferred unearned revenue include prepaid subscriptions, rent, insurance or professional service fees. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics.

In other words, this account’s credit balance is contrary to (or opposite of) the usual debit balance for an expense account. If a company offers an early payment discount (such as 1% or 2% of the invoice amount if it is paid within 10 days instead of the required 30 days) the amount of the discount is recorded in the contra revenue account Sales Discounts. Again, the company’s management will see the original amount of sales, the sales discounts, and the resulting net sales. Allowance for doubtful accounts (ADA) is a contra asset account used to create an allowance for customers who are not expected to pay the money owed for purchased goods or services.

Contra Expense Account Examples

• Those who are struggling with recording contra accounts may benefit from utilizing some of the best accounting software currently available.
• And when your business still has some of these outdated, unwanted, or unusable items in your inventory, you’ll want to offset the lost value of these assets in your general ledger and balance sheet.
• He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.
• Consider an asset account, where the values are listed as debits, and the account itself will present a positive total.
• Likewise, when you pay a bill, your cash account is reduced (credited) because you’re lowering the balance.

An example of recording a contra asset