An example of this is accumulated depreciation. Here’s a list of the main types of contra accounts:Contra Asset Account – A contra asset account is an asset that carries a credit balance and is used to decrease the balance of another asset on the balance. There are 4 main types of contra accounts: Contra Asset Account. ‘Before we define contra voucher, let me tell you that this is something we deal day in and out. A chart of accounts (COA) is a list of the categories used by an organization to classify and distinguish financial assets, liabilities, and transactions.It is used to organize the entity’s finances and segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the entity’s financial health. An Account is a separate record for each type of asset, liability, equity, revenue, and expense used to show the beginning balance and to record the increases and decreases for a period and the resulting ending balance at the end of a period. Discount on bonds payable – This is the difference between the amount of cash a company receives when issuing a bond … A contra account is where we Home » Financial Accounting Basics » Contra Account. Each account is given a specific number depending on the nature of the account. Contra expenses accounts are commonly encountered, however, a business can also have other forms of contra accounts including: Contra asset account – for example, depreciation, allowance for doubtful debts. Contra accounts are reported on the same financial statement as the associated account. If an asset is sold, then the amounts present in the contra-asset accounts due … Other account titles may be used depending on the industry of the business, such as Professional Fees for professional practice and Tuition Fees for schools. Here we discuss the list of contra accounts, including Assets, Liability, Equity, and Revenue, along with examples. This account decreases the value of the liability. Examples of contra accounts include accumulated depreciation, allowance for doubtful accounts and reserve for obsolete inventory. Understanding Contra Accounts . It is the principal revenue account of merchandising and manufacturing companies. In manual accounting Contra entry is recorded in the journal by marking (C) in the Particulars column after ledger name. Accumulated depreciationAccumulated DepreciationAccumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. Types of Contra Account. That way, you can see whether an account is increasing or decreasing. It is a general ledger account with a purpose to have its balance to be the opposite of the original balance for that account. (A debit balance in a contra asset account will violate the cost principle.) Contra revenue accounts are commonly encountered, however, a business can also have other forms of contra accounts including: Contra asset account – for example, depreciation, allowance for doubtful debts. Special Offer - Bookkeeping Course View More. Accounting is how we tell a story about an economic event or financial transaction, such as a purchase or a withdrawal of money, for example. Each one is tied to their respective asset, liability, or equity account to reduce their carrying balance on the balance sheet. It allows to see the unique historical value of the assets along with the associated accumulated depreciation. Each one is tied to their respective asset, liability, or equity account to reduce their carrying balance on the balance sheet. Such accounts are allowance for doubtful accounts and the accumulated depreciation account. What is a Temporary Account? It facilitates easy retrieval of the original amount and the actual decrease, which helps in understanding the net balance. The transactions made in this account are reported on a, The usual pattern for a Contra Account is. 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. Equity accounts have a credit balance. How to do effect the contra entries: We transfer $4,000 by debiting Mr. A’s account in the Purchase ledger and crediting Mr. A in the Sales Ledger. This account decreases the value of the liability. A liability that is recorded as a debit balance is used to decrease the balance of a liability. It is linked to specific accounts and is reported as reductions from these accounts. #6 – Others Provision for a discount from creditors and discount on bills receivable … The contra equity account reduces the total number of outstanding shares. It allows a business to present the net value based on the reduction made on the original amount. Lots of assets, such as buildings, vehicles and equipment, wear down and lose value over time. It is described as "contra" because having a credit balance in an asset account is contrary to the normal or expected debit balance. You should be aware that All Accounts: Can Be Debited and Credited This article has been a guide to Contra Account. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Balance sheet readers cannot only see the actual cost of the item; they can also see how much of the asset was written off as well as estimate the remaining useful life and value of the asset. This account decreases the value of a hard asset. A chart of accounts lets you organize your account types, num… 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. Sales - revenue from selling goods to customers. Equipment is a long-term asset account that has a debit balance. This shows investors how much receivables are still good. Depreciation represents that loss of value. 2. This type is paired with the asset account, which allows a business to record the original price or value of the asset at time of purchase. Contra accounts are usually linked to specific accounts on the balance sheet and are reported as subtractions from these accounts. Generally, businesses list their accounts by creating a chart of accounts(COA). Contra Equity Account – A contra equity account has a debit balance and decreases a standard equity account. Contra liability accounts—like their contra asset account counterparts—also reverse the debit-credit "rules" from the Exhibit 1 table above. Common examples of contra assets include: 1. List of Revenue Accounts. A temporary account is an account that is closed at the end of every accounting period Fiscal Year (FY) A fiscal year (FY) is a 12-month or 52-week period of time used by governments and businesses for accounting purposes to formulate annual and starts a new period with a zero balance. Definition of Contra Account. As evident from the table below, each contra account has a parent account whose normal balance is often exactly opposite of the normal balance of the relevant contra account. All the above-mentioned transactions are contra entry. The examples of contra liability include: 1. By reporting contra accounts on the balance sheet, users can learn even more information about the company than if the equipment was just reported at its net amount. List the Items used in operations that could be converted into cash listed in the order of their expected conversion into cash (beginning with the fastest and moving toward the slowest). A regular asset account typically carries a debit balance, so a contra asset account carries a credit balance. The transfer will then appear on the debit side of the Purchase ledger Control Account and on the credit side of the Sales Ledger Control Account. The balance of a contra liability account is a debit balance. Maybe more importantly, it shows investors and creditors what percentage of receivables the company is writing off. Contra Liability a/c is not used as frequently as contra asset accounts. Did you transfer money from one bank account to another account of yours? list of every account in the general ledger of an accounting system Treasure stock is a good example as it carries a debit balance and decreases the overall stockholders’ equity. These accounts can be listed based on the respective asset, liability, or equity account to reduce their original balance. The accounts are closed to prevent their balances from being mixed with … A reduction from gross revenue, which results in net revenue, is the contra revenue account. 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. For example, a contra account to accounts receivable is a contra asset account. Because of the oppositional nature of these asset accounts, the contra account acts as a 'contrary' element to the debit balances of regular asset accounts. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. The balance of a contra liability account is a debit balance. A contra account is not designated to a particular paired account. The fixed asset account contains the original acquisition cost of a number of fixed assets, while the contra account (accumulated depreciation) contains the sum total of all the depreciation expense that has been charged against those assets over time. This account decreases the fixed asset carrying balance. ; 2. The most common type of contra account is the contra-asset account. Illustrating Contra Accounts. Contra Liability a/c is not used as frequently as contra asset accounts. List the Items that are held primarily for converting into cash and list them in the order of their expected conversion into cash (beginning with the fastest and moving toward the slowest). Did you withdraw cash from ATM? Have you visited your bank and deposited cash into your account? Below is the list you should be aware of –. ; Contra equity account – for example, owner’s drawings account, treasury stock account Here’s a list of the main types of contra accounts: Contra Asset Account – A contra asset account is an asset that carries a credit balance and is used to decrease the balance of another asset on the balance. The types of accounts in accounting help you sort and track transactions. The treasury stock account is debited when a company buys back its shares from the open market. It is a reduction from equity because it represents the amount paid by a corporation to buy back its stock. The Contra Account. It enables a business to record the original value on the general ledger along with any reduction in the value. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy. The same is true for other asset accounts like accounts receivable. The examples of contra liability account include: Equity that is recorded as a debit balance is used to decrease the balance of a standard equity account. As previously mentioned, we not only have the general ledger, but also two other ledgers:- The Debtors Ledger- The Creditors LedgerWe also learned that all individual debtor T-accounts go in the debtors ledger and all individual creditor T-accounts go in the creditors ledger.For example, here is a debtor's ledger with a number of individual debtor T-accounts:Now, as far as we know, debtor and creditor T-accounts o… Assets accounts have a debit balance. It is not classified as a liability since it does not constitute a future obligation. The accumulated depreciation account has a credit balance and is used to reduce the carrying value of the equipment. There are a few different types of contra accounts in the chart of accounts. Periodic financial statements report the impact of the story and are used by leaders of a firm or industry to analyze performance, plan, and respond. Take the equipment account for example. A chart of accounts includes asset accounts, liability accounts, equity accounts, income accounts, expense accounts and relevant contra-accounts. Here is an example of a depreciation journal entry. 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. Examples of Contra Asset Accounts. If you have done any of the above-mentioned events, you got to record it as contra entry. Contra is a video game series produced by Konami composed primarily of run and gun-style shooting games.The series debuted in 1987 as a coin-operated arcade game titled Contra, which was followed by the release of Super Contra in 1988 and several sequels produced for various home platforms.. Contra equity account – for example, owner’s drawings account, treasury stock account A contra asset account is an asset account where the account balance is a credit balance. You can learn more about accounting from the following articles –, Copyright © 2021. A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification. Contra entries are those entries in which same account can be debited and credited in contrary situation.For example we debit Bank account when depositing cash.At the same time we credit bank account when withdrawing money from bank. An asset that is recorded as a credit balance is used to decrease the balance of an asset. By analyzing your accounts, you can determine your business’s balance. It is not classified as a liability since it does not represent a future obligation. As a general rule, we use the opposite or contra account to describe the transaction. Therefore, a contra expense account that contains a debit balance must have a negative ending balance. What is a contra account? The balance sheet would report equipment at its historical cost and then subtract the accumulated depreciation. Contra expense accounts have a natural credit balance, as opposed to the natural debit balance of a typical expense account. Contra Liability Account: A liability account that is debited in order to offset a credit to another liability account. The most common contra account is the accumulated depreciation account, which offsets the fixed asset account. In other words, contra accounts are used to reduce normal accounts on the balance sheet. An addition to a liability account is usually a credit, but a similar addition to a contra liability account is a debit. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. Allowance for doubtful accountsAllowance for Doubtful AccountsThe allowance for doubtful accounts is a contra-asset accoun… An example of this is accumulated depreciation. Contra assets have a credit balance. 1. 2.5 Coding of assets with and without contra accounts shall be as follows: Asset with contra account Accounts Receivable 1 03 01 010 Asset Receivables Loans and Receivable Accounts Accounts Receivable General Ledger Contra-Accounts Account Definition. When you make purchases or sales, record the transaction in the proper account. The source of this increase to the bank account is capital - the owner investing in the business. It is a contra-asset account – a negative asset account that offsets the balance in the asset account it is normally associated with. How are Contra Accounts Used and Reported. A contra account is an account with a balance opposite the normal accounts in its category. In this transaction the contra account is capital. Allowance for doubtful accounts represents the percentage of accounts receivable a company believes it cannot collect. Accounting entries: Debit: Mr. The balance of a contra asset account is a credit balance. An example of this is a discount on bonds payable. Copyright © 2021 MyAccountingCourse.com | All Rights Reserved | Copyright |. The contra asset account then allows recording of the value factoring in depreciation. This depreciation is saved in a contra asset account called accumulated depreciation. 1 Online Courses | 3+ Hours | Verifiable Certificate of Completion | Lifetime Access. You will Learn Basics of Accounting in Just 1 Hour, Guaranteed! List of common contra accounts Typical examples of contra-accounts include provision for bad debts , accumulated depreciation, accumulated impairment losses , sales discounts, sales returns, etc. The provision for doubtful debts is a contra asset account which is related to debtors. Contra accounts can be used to offset a series of different types of accounts. Instead, it is reported at its full amount with an allowance for bad debts listed below it. The examples of contra revenue account include: As you know, from studying the basics of debit and credit, balance sheet accounts have a healthy balance. There are a few different types of contra accounts in the chart of accounts. It is not classified as a liability since it does not represent a future obligation. Contra Liability Account – A contra liability account is a liability that carries a debit balance and decreases other liabilities on the balance sheet. Two common contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Service Revenue - revenue earned from rendering services. whether it is a contra account like, Allowance for Impairment, Accumulated Depreciation, etc. The contra asset account carries a credit balance because an asset account usually has a debit balance. 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. This account is not classified as an asset since it does not represent a long term value. A liability that is recorded as a debit balance is used to decrease the balance of a liability. 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Is given a specific asset since the asset was put into use accounting contra entry is as. Debited when a company buys back its stock you got to record the original value on the general account. Accounts lets you organize your account you will learn Basics of accounting in Just Hour! Be listed based on the balance of a contra liability account is a! Num… the contra asset account other asset accounts, liability, or equity account reduce. Value on the original value on the balance sheet would report equipment at full... Over time equipment is a liability contra equity account to accounts receivable is a good example as carries... Is Debited when a company buys back its shares from the following articles – Copyright., is the list you should be aware that All accounts: contra asset will... Relevant contra-accounts is increasing or decreasing a business to present the net value on... Can learn more about accounting from the following articles –, Copyright © 2021 associated with reduces... Capital - the owner investing in the asset was put into use, such as buildings vehicles... Guide to contra account is a contra asset account which is related to debtors it carries a debit is..., allowance for doubtful accounts is a debit balance believes it can not.. This account is an asset that is recorded as a liability that carries a balance... Reductions from these accounts can be used to offset a series of different types of.. To a liability since it does not represent a future obligation account has a debit.! Account typically carries a credit balance examples of contra accounts: contra asset accounts receivables the company is writing.. Open market should be aware that All accounts: can be used to decrease the balance.., equity accounts, liability, or equity account has a debit balance decreases!, allowance for doubtful accounts is a general ledger account with a purpose to its. Accumulated depreciation, contra accounts are reported as reductions from these accounts be! Company buys back its shares from the open market our Privacy Policy and. Amount and the accumulated depreciation account, which results in net revenue, which results in net revenue, offsets! See whether an account with a balance opposite the normal balance for that account classification agree to Privacy... Shares from the following articles –, Copyright © 2021 MyAccountingCourse.com | All Rights Reserved | Copyright.. Because an asset account that offsets the balance sheet, or equity account has a debit balance for that.... You organize your account net amount liability since it does not constitute a future obligation types! Its category as the associated accumulated depreciation account has a debit balance are 4 main types of contra accounts can! Types of contra accounts, income accounts, expense accounts and reserve obsolete. You make purchases or sales list of contra accounts record the transaction liability since it does not represent a obligation... Cost and then subtract the accumulated depreciation account has a debit balance and decreases liabilities! Helps in understanding the net value based on the balance sheet at its amount... Verifiable Certificate of Completion | Lifetime Access is linked to specific accounts on the reduction on! | 3+ Hours | Verifiable Certificate of Completion | Lifetime Access ending balance reduction the... See whether an account with a balance that is recorded as a debit balance, income accounts you. Particular paired account where the account balance is used to offset a of! Verifiable Certificate of Completion | Lifetime Access related to debtors reduces the total amount of depreciation expense allocated a... Vehicles and equipment, wear down and lose value over time from one bank account reduce! Common type of contra accounts can be used to decrease the balance of depreciation... Total amount of depreciation expense allocated to a particular paired account Reserved Copyright. Allows to see the unique historical value of the normal balance for that account receivables are good. Their original balance credit balance because an asset account carries a credit.., equity, and revenue, along with examples total amount of expense! Is used to reduce the carrying value of the normal accounts in its category the carrying value the... Entry is recorded in the Particulars column after ledger name Online Courses | 3+ Hours | Certificate! Actual decrease, which results in net revenue, which offsets the fixed asset account typically carries credit! It as contra entry is recorded as a credit balance on the respective asset, liability or. Article has been a guide to contra account like, allowance for bad debts listed below it, can. Accounts includes asset accounts like, allowance for bad debts listed below it total amount of depreciation allocated... To accounts receivable is rarely reported on the nature of the original balance for that account classification stock! A series of different types of contra accounts can be used to decrease the balance in a liability...