What is a Contra Account?

A company receives rebates for advertising it does on behalf of brands it carries in its stores. For example, a grocery store displays advertisements for a national brand in its weekly flyer. The national brand gives the grocery store cash, reducing the overall cost of printing the flyer. The purpose of the Allowance for Doubtful Accounts is to track the reduction in the value of the asset while preserving the historical value of the asset. Master accounting topics that pose a particular challenge to finance professionals. Still, the dollar amounts are separately broken out in the supplementary sections most of the time for greater transparency in financial reporting.

Asset Contra Account

The purpose of the Accumulated Depreciation account is to track the reduction in the value of the asset while preserving the historical cost of the asset. We can see how the $10,000 allowance for doubtful accounts offsets the $100,000 A/R account from our illustrative example above (i.e. the account decreases the carrying value of A/R). Examples of deferred unearned revenue include prepaid subscriptions, rent, insurance or professional service fees. Let me know if you have other concerns about your financial records. For more details about this one, I would recommend consulting your accountant and getting further assistance from them. This is to ensure that everything is accurate, and the reporting of your book is moving well.

What is a contra account?

For example, we need to keep the face value of a bonds payable and the premium amount in separate ledger accounts even though both have credit balances. A separate account used in Contra Expense Account such a situation is sometimes called a adjunct account. Contra accounts are used to reduce the value of the original account directly to keep financial accounting records clean.

Contra Expense Account Examples

• A Fixed Asset is a Long-term Asset used by a company to create revenue.
• This type of account could be called the allowance for doubtful accounts or a bad debt reserve.
• We still have to manually set up and track on how much we depreciate a fixed asset into this account.
• Last, for contra revenue accounts there are sales discounts, sales allowances, or sales returns.
• He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
• When the company pays the cost of having the flyer printed, a journal entry is done.

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens”publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa. QuickBooks Online has different interphase and features compared to QuickBooks Desktop. Moving forward, follow the steps below for the complete process of an account set up in the QuickBooks Desktop version. I’d love to show you the way and set up an account in QuickBooks Desktop, @khatfieldcpa. The product we get is written by computer people who have no clue what accounting is, further, there appears to be no input from CPA’s and Accountants.

• Let’s consider a fictional example of a small retail business called “GadgetHub” to illustrate the use of a contra expense account in financial accounting.
• Of course, you’ll also have to pay your employees’ wages, your rent, your utilities and other costs.
• For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
• Contra accounts provide more detail to accounting figures and improve transparency in financial reporting.
• The purpose of the Accumulated Depreciation account is to track the reduction in the value of the asset while preserving the historical cost of the asset.

Generally in the financial statements the revenue account would be offset against the contra revenue account to show the net balance. In double entry bookkeeping terms, a contra revenue account or contra sales account refers to an account which is offset against a revenue account. In an accounting system, ledger accounts are designed to contain only similar transactions and/or balances. A separate account is needed whenever the nature of transactions changes. It is because clubbing together dissimilar transactions impedes any analysis.

• A contra account is a general ledger account that offsets the balance of a corresponding account with which it’s paired.
• Accumulated Depreciation acts as a subaccount for tracking the ongoing depreciation of an asset.
• If the balance in your allowance for doubtful accounts has a credit of $1,000 and your accounts receivable has $20,000 in normal debit balance, then the net value of the receivables is $19,000.
• Examples of contra expense accounts include Purchase Returns, Purchase Discounts, and Advertising Reimbursements.
• Accumulated depreciation reflects the reduction in value of a fixed asset.

Bookkeeping

Example #1: Revenue Contra Account

Contra Account Example: Allowance for Doubtful Accounts