Contra Asset Account

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). Each of the following accounts is either an Asset , Contra Account , Liability , Shareholders’ Equity , Revenue , Expense or Dividend account. Hearst Newspapers participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites.

Still, it is important when possible to consider how the net accounts are calculated and be wary of companies that are reporting a ton of bad debts. Allowance for doubtful accounts 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. The allowance for doubtful accounts appears on the balance sheet and reduces the amount of receivables. Contra Asset AccountA 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.

Types of Contra Assets

Dividends are not a source of capital, but instead are a use of capital. Dividends is a debit account, capital accounts are normally credit accounts. As mentioned, CA accounts are usually listed below their matching asset accounts, and the net values of those assets are written next to the contra accounts. The difference, which is $500, is thus listed as a discount on bonds payable and is debited to the contra liability account «discount on bonds payable.» Sometimes, both accounts can be written in a single line if they don’t represent a large portion of the assets.

Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company. These accounts can be listed based on the respective asset, liability, or equity account to reduce their original balance. Within equity, an example of a contra account is the treasury stock account; it is a deduction from equity, because it represents the amount paid by a corporation to buy back its stock.

Contra Asset Accounting & Examples

Contra asset accounts also help companies keep their general ledgers organized. By recording reductions in a separate account, companies can get better insights into their actual accounts. Similarly, it allows companies to retrieve original account balances without complicated calculations. For stakeholders, looking at both accounts is also crucial in their decision-making process. Sometimes, the current value of a note receivable will fall compared to its face value.

As mentioned, companies do not represent these accounts on the balance sheet. However, they will still appear on the notes to the financial statements with necessary disclosures. Instead, the existence of contra asset accounts for companies will differ based on a company’s requirements. However, there are some prevalent contra asset accounts that may exist for all companies.

The Contra Asset Account

The company uses the straight-line depreciation method for the car. Accumulated depletion is the counterpart of natural resource contra definition accounting assets. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

• This can be seen as a refund or the loss of revenue for the returned goods.
• The contra equity account treasury stock is reported right on the balance sheet.
• It usually nets off against related accounts and provides an opposite effect to the balance.
• Add contra account to one of your lists below, or create a new one.
• Similarly, these accounts can also be essential in various calculations.
• This account, in general, reflects the cumulative profit or loss of the company.