Examples of revenue contra accounts are Sales Discounts, Returns and Allowances. Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Accumulated depreciation reflects the reduction in value of a fixed asset. Last, for contra revenue accounts there are sales discounts, sales allowances, or sales returns.
Contra Account
For its day-to-day operations, the business maintains a fleet of 75 identical 2016 Ford Explorer limousines, each initially retailing at $150 thousand. However, these vehicles have experienced significant wear and tear in the intervening years. And currently, Show-Fleur anticipates that it could only sell each one for roughly $50 thousand, meaning the depreciation per vehicle is $100 thousand. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.
- A business called Show-Fleur offers private driving tours of local botanical gardens — all from the comfort of high-end limousines.
- This means that accounts receivables have a debit balance of $10,000, and the firm credits revenue for $10,000.
- Examples of a contra revenue accounts include sales returns, sales discounts, and sales allowances.
- Treasure stock is a good example as it carries a debit balance and decreases the overall stockholders’ equity.
- They are usually subcategory accounts linked to an account on the balance sheet.
Contra Equity Account
It can help companies see the complete picture of their income and expenses and their equity or net worth. In footnote 3, the company reports, “Net property and equipment includes accumulated depreciation and amortization of $25.3 billion contra revenue account as of August 1, 2021 and $24.1 billion as of January 31, 2021.” The sales discounts account contains the amount of sales discounts given to customers, which is usually a discount given in exchange for early payments by them.
How to Present Contra Accounts on Financial Statements
Sometimes, both accounts can be written in a single line if they don’t represent a large portion of the assets. In case the contra asset account is not listed in the balance sheet, it must be listed in the footnotes of the financial statement for the users to be informed. However, some asset accounts need a negative counterpart to reduce the balance of that account.
- As mentioned, contra asset accounts are usually listed below their matching asset accounts, and the net values of those assets are written next to the contra accounts.
- The allowance for doubtful accounts is used to reduce the net income by the estimated amount of uncollected receivables.
- In its general ledger, the business will want to capture its gross sales figures and the actual value of the discount.
- At this point, it isn’t known which accounts will become uncollectible so the Accounts Receivable balance isn’t adjusted.
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- A contra account is an account with a balance opposite the normal accounts in its category.
A contra account is an account with a balance opposite the normal accounts in its category. Contra accounts are usually linked to specific accounts on the balance sheet and are reported as subtractions from these accounts. In other words, contra accounts are used to reduce normal accounts on the balance sheet.
This would let users of the financial statements calculate the book value of the liability. In the books, the account of the asset would have a debit value of $100,000, and the contra asset account would have a credit value of $30,000. If the asset account had a credit balance or the contra asset account had a debit balance, this would indicate an error in the journal entries. This would allow the company to track the amount of money that has been borrowed. The contra liability account would be used to offset the liability account on the balance sheet. The company estimates that it will not be able to collect 1,000 from its customers.
Contra Asset
Is Unearned Revenue a Contra Account?
- For example, an asset was purchased by a company for $100,000 – that is, the historical cost of the asset was $100,000 – and its contra asset counterpart has a balance of $30,000.
- A company might decide to purchase its stock when the board of directors feel the stock is undervalued or when it wishes to pay its shareholders dividends.
- A contra account is an asset account that is kept at either a negative or zero balance and is used on a balance sheet to offset the positive balance of a paired asset.
- All three values can be useful for investors depending on what they’re looking for.
- The auditors aim to keep the balances at their adequate levels, but the controller might want to keep them as low as possible to reduce expenses and maximize profit levels.
- Whenever the balance of an account needs to be reduced in a company’s ledger, it is not always applicable to credit the account if it is an asset or debit the account if it is a liability.