In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

What is a contra asset example?

Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Allowance for doubtful accounts reduce accounts receivable, while accumulated deprecation is used to reduce the value of a fixed asset.

What type of asset is a contra asset?

A contra asset is a negative asset account that offsets the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

Where is a contra asset?

A contra asset account is an asset account where the account balance is a credit balance. It is described as "contra" because having a credit balance in an asset account is contrary to the normal or expected debit balance. (A debit balance in a contra asset account will violate the cost principle.)

What is a contra account in accounting?

A contra account offsets the balance in another, related account with which it is paired. Contra accounts appear in the financial statements directly below their paired accounts. Sometimes the balances in the two accounts are merged for presentation purposes, so that only a net amount is presented.

Contra accounts explained

Is contra asset an asset?

A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. 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.

Is depreciation a contra asset?

By having accumulated depreciation recorded as a credit balance, the fixed asset can be offset. In other words, accumulated depreciation is a contra-asset account, meaning it offsets the value of the asset that it is depreciating.

Do contra assets go on the balance sheet?

Contra assets and contra liabilities are listed on a company's balance sheet and carry balances opposite of their related accounts. Unlike regular assets and liabilities, contra assets typically keep a credit balance and contra liabilities typically keep a debit balance.

Which of the following is considered a contra account?

Answer and Explanation: The correct answer is option a. Accumulated depreciation. The accumulated depreciation account is a contra asset account because it reduces the...

Is bad debt expense a contra asset?

Your allowance for bad debts is a contra-asset account, which means that it will appear on your balance sheet alongside all of your other asset accounts.

What is another term for contra asset accounts?

Allowance for doubtful accounts (ADA) is a contra asset account used to create an allowance for customers that 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.

What is an example of a contra liability account?

Examples of contra liabilities include a discount on notes or bonds payable. Contra liabilities hold a debit balance. Contra liability accounts are not as popular as contra asset accounts. Companies that issue bonds are likely to use contra liability accounts.

Is wages payable a contra account?

Definition: Wages payable is a current liability account that records the amount of wages that are owed to employees for work that was performed by the employees in prior periods. In other words, wages payable is the amount of wages that employee hasn't paid the employees for their work.

Is prepaid expense a contra asset?

Recall that prepaid expenses are considered an asset because they provide future economic benefits to the company. The adjusting journal entry for a prepaid expense, however, does affect both a company's income statement and balance sheet. Refer to the first example of prepaid rent.

Is rent expense an asset?

Under the accrual basis of accounting, if rent is paid in advance (which is frequently the case), it is initially recorded as an asset in the prepaid expenses account, and is then recognized as an expense in the period in which the business occupies the space.

Is rent expense a debit or credit?

Since cash was paid out, the asset account Cash is credited and another account needs to be debited. Because the rent payment will be used up in the current period (the month of June) it is considered to be an expense, and Rent Expense is debited.

What is contra accounts receivable?

A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification. 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.

Why is a contra account important?

Importance of Contra Accounts

A contra account always offsets the balance of a corresponding account. Any entry made to contra accounts is presented on a company's balance sheet under the paired account. The contra accounts in the balance sheet help the users of the financial statement to get complete information.

Is allowance for doubtful accounts a contra asset?

An allowance for doubtful accounts is considered a “contra asset,” because it reduces the amount of an asset, in this case the accounts receivable. The allowance, sometimes called a bad debt reserve, represents management's estimate of the amount of accounts receivable that will not be paid by customers.

When can you write-off bad debt?

Generally, to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you're a cash method taxpayer (most individuals are), you generally can't take a bad debt deduction for unpaid salaries, wages, rents, fees, interests, dividends, and similar items.

Is depreciation an expense?

Is Depreciation Expense an Asset or Liability? Depreciation expense is recorded on the income statement as an expense and represents how much of an asset's value has been used up for that year. As a result, it is neither an asset nor a liability.

What can be amortized?

Amortization is typically expensed on a straight-line basis.
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Examples of intangible assets that are expensed through amortization include:

• Patents and trademarks.
• Franchise agreements.
• Proprietary processes, such as copyrights.
• Costs of issuing bonds to raise capital.
• Organizational costs2.

Are salaries expense?

Salaries and Wages as Expenses on Income Statement

are part of the expenses reported on the company's income statement. Under the accrual method of accounting, the amounts are reported in the accounting period in which the employees earn the salaries and wages.

Why do we depreciate?

Why do we depreciate assets? We depreciate assets to more accurately reflect an activity's financial condition, to account for the loss in value over time and, specific to self-supporting units, to provide funding to replace the item at the end of its useful life.

Can I legally write off my debt?

Most creditors are able to consider writing off their debt when they are convinced that your situation means that pursuing the debt is unlikely to be successful, especially if the amount is small.