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.“ As mentioned, CA accounts usually have a negative value which is the same as a credit balance. That is to completely or partially offset the balance of their related asset accounts. Asset accounts usually have a positive https://www.wave-accounting.net/ value which is the same as a debit balance. Examples of contra accounts include allowance for doubtful accounts, reserve for obsolete inventory, and accrued liabilities. Each of these accounts helps to offset another account on the balance sheet. Another reason to include contra accounts on a balance sheet is to preserve the historical value of the main account.

Peggy James is a CPA with over 9 years of experience in accounting and finance, including corporate, nonprofit, and personal finance environments. She most recently worked at Duke University and is the owner of Peggy James, CPA, PLLC, serving small businesses, nonprofits, solopreneurs, freelancers, and individuals. The technical storage or access that is used exclusively for anonymous statistical purposes. Apart from these differences, there are some similarities between both accounts. Intangible assets include assets that do not have physical substance, but provide future economic benefits.

Definition Of a Contra Account?

The same is true for other asset accounts like accounts receivable. Accounts receivable is rarely reported on the balance sheet at its net amount.

To oppose the revenue made by a company, contra revenue accounts must have a debit balance. However, some asset accounts need a negative counterpart to reduce the balance of that account. The debit balance of the asset account and the credit balance of the contra asset account determine the net value of the asset. Contra asset account examples include any transaction made on a contra account to balance out the debit account. Contra asset examples can be accumulated depreciation, discounts on notes receivable, trade accounts receivable, and obsolete inventory reserves. The contra account definition in business accounting is an account used in the general ledger for the purpose of reducing the amount in another account related to it. A general ledger is a comprehensive list of all accounts and their connected transactions in a business.

Presentation of Contra Assets

Accumulated depreciation would be reduced from the equipment account and a net amount would be reflected in a balance sheet. Consequently, in the first year, the equipment would reflect a net value of $90,000, which is computed by deducting the accumulated depreciation from the equipment’s historical cost. Therefore, in the allowance method, relevant bad debt expense is recorded and accounts receivable are written off when these are considered not recoverable. Allowance for doubtful debts accounts are opposite to accounts receivable accounts. Accounts receivable are the customers to whom an organization had sold goods or provided services on credit.