For example, accumulated depreciation will go along with related assets. Although contra-asset accounts have credit balances, they do not appear in liabilities or equity. Usually, credit balances include items from one of those two natures. Note that the contra liability account has a positive balance (a debit balance), and the liability account normally has a credit balance. Hence, the book value of the liability will be the credit balance of the liability account minus the debit balance of its contra liability counterpart. Both the asset and the corresponding contra asset accounts must be stated clearly in the balance sheet.

Contra asset accounts are reported with the related account on the same financial statement. The net amount – i.e. the difference between the account balance post-adjustment of the contra account balance – represents the book value shown on the balance sheet. Contra asset accounts help companies record any reductions to their non-current and current assets. By doing so, they can bring their asset accounts to a more accurate position.

• If the related account is a liability account, then a contra liability account is used to offset it with a debit balance.
• Most accountants choose to record the depreciation over the useful life of an item in the accumulated depreciation contra asset account, which is a credit account.
• In accounting lingo, a dual entry account system includes the concept of a contra entry.
• This helps the firms to evaluate the book value of their assets and liabilities.

Usually, the asset account is listed first, and its contra asset counterpart is listed underneath, with the asset’s net value or book value. 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. Hopefully, you have a pretty clear idea of contra asset meaning—no need to ask to define contra asset accounts anymore. Including contra asset accounts on your balance sheets can be hugely beneficial for your business. The company’s contra asset account will record unusable or obsolete assets.

Is Accounts Receivable a Contra Account?

When a company repurchases shares, it increases the fractional ownership of all remaining shareholders. The importance of contra asset accounts is generally to reduce the value of some related account. The contra asset account pulls the value of the combined accounts down, which in turn decreases the value of the second account as well, which is a normal account. While accumulated depreciation is the most common contra asset account, the following also may apply, depending on the company.

The investor may also simply want to diversify and not hold only assets that tend to move in the same direction. This improvement in the accounting details and transparency is good for any business in multiple ways. Businesses can also write off many expenses like these from the financial records even if the inventory has been phased out completely. The NES version recomposes the seven stages of the arcade version into eight stages. Stages 2 and 3 were combined into one stage, resulting in the renumbering of the Waterfall level from Stage 4 to Stage 3, while Stages 5 and 6 were combined into the new Stage 4. The final four stages of the NES version (the Snowfield, Energy Zone, Hangar and Alien Lair) are based on the different areas featured in the arcade version’s final stage.

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author financial modeling for real estate development of all the materials on AccountingCoach.com. The money left over after a company supports operations can be a snapshot of its financial health.

Contra Account Examples

Accumulated depreciation is a contra asset account used to record the amount of depreciation to date on a fixed asset. Examples of fixed assets include buildings, machinery, office equipment, furniture, vehicles, etc. The accumulated depreciation account appears on the balance sheet and reduces the gross amount of fixed assets.

These three types of contra accounts are used to reduce liabilities, equity, and revenue which all have natural credit balances. Therefore, for these three, the debit balance actually represents a negative amount. Contra asset accounts are a type of contra account that net off against asset accounts.

Discount on Notes Receivable

The game can be played by one or two players, but due to the graphical limitations of the NES, Bill and Lance lost their individualized character designs. Instead, they are both depicted as shirtless commandos distinguished by the colors of their pants (blue for Bill and red for Lance). When one player loses all of their lives, they are given the option to use the other player’s stock to keep fighting.

What Is a Contra Asset?

Within equity, an example of a contra account is the treasury stock account; it is a deduction from equity, because it represents the amount paid by a corporation to buy back its stock. In accounting lingo, a dual entry account system includes the concept of a contra entry. It’s an entry that’s the offset or reverse of an entry that’s on the other side of the account. An entry will be recorded on the credit side if and when a debit entry is recorded in an account and vice-versa. The arcade version of Contra consists of seven stages (the number of stages and level structures vary in later versions). The player must destroy a generator at the other side of each passageway in order to deactivate the electric current preventing access.

Understanding a Contra Market

They represent that no posting in respect this is necessary in the ledger. The examples in the following section will make your understanding little deeper on contra entry. Suppose a clothing business has sold $50,000 of inventory on credit.

By reporting contra asset accounts on the balance sheet, users of financial statements can learn more about the assets of a company. Contra asset accounts allow users to see how much of an asset was written off, its remaining useful life, and the value of the asset. Contra asset accounts are hugely beneficial for nearly all types of companies. A contra asset account example is an accumulated depreciation account that will help the company track and offset fixed assets. Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation.

To fund this account, the cash is transferred from the main cash account to petty cash account. When researching companies, the financial statement is a great place to start. Contra accounts are confusing at first, but, with a little study, understanding them becomes second nature. Let’s go over how they work and what the main types are, and then finish with an example. The $10,000 of depreciation will reduce the book value of the car.