contra asset account

The stock that a corporation buys back is called treasury stock. Treasury stock differs from other stocks in that it has no voting rights, and no dividends are paid to the treasury stock. The main reason retail accounting is to make the remaining shares more valuable, as their prices are expected to rise after the stock buyback. This means it received $4,500 in cash but needs to pay $5,000 back to the bondholders.

contra asset account

The amount in the accumulated depreciation account is deducted from the assets of a company, such as buildings, vehicles and equipment. This can help anyone viewing the financial information to find the historical cost of the asset. The accumulated depreciation amount shows how much depreciation expense has been charged against an asset. Accumulated depreciation decreases the value of an asset, bringing it more in line with its market value. In the direct write-off method, bad debt expense is charged when these are incurred. The accounting entry for this is debit, bad debt expense and credit to accounts receivable.


For instance, it is common to keep the purchase price of a piece of equipment as a historical cost in the debit asset account when it comes to fixed assets. Unlike the three previously mentioned contra accounts, contra revenue accounts are not listed in the balance sheet but are written near the top of the income statement. Contra revenue accounts typically offset revenue accounts in a firm’s income statement. Contra liability accounts are less commonly used than contra asset accounts. Contra liability accounts are mainly used by corporations that issue bonds frequently.

Short-term assets like inventory or cash are meant to be used in the course of a year while long-term assets include items held for the long-term like equipment or land. A contra account is used in order to better portray the relationship between certain debits and credits within the overall financial structure of an entity. A contra account can be used to remedy an error, to track depreciation of an asset, or to register payments that are not collectible. Accrued assets are assets, such as interest receivable or accounts receivable, that have not been recorded by the end of an accounting period. Contra assets allow for more granular visibility on the balance sheet by maintaining historical costs and independent values rather than reducing the original account directly. The difference between an asset’s account balance and the contra account balance is known as the book value.

Contra Asset Account

If you stock a limited amount of inventory, you could probably do without it. Many or all of the products here are from our partners that compensate us. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Outline which accounts are affected and which accounts are not affected by closing entries. Which of these accounts would normally not be affected by an adjustment?

They are the current assets of a company expected to be realized within 12 months. Contra revenue account, which is used to record the net amounts and usually has a debit balance, as opposed to the revenue account that records the gross amounts. The asset’s balance is reduced by the impairment amount to reflect the asset’s new economic value and the account remains on the balance sheet. The decrease in the asset and accumulated depletion accounts reduces the balance to zero and removes the account from the balance sheet. Unlike a regular disposal of an asset, where the asset is abandoned and written off the accounting records, an asset disposal sale involves a receipt of cash or other proceeds.

Category: Bookkeeping

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