Revenue is an income statement account, but it flows through to the equity section of retained earnings as well. Any products that are sold at a discount or returns are deducted from gross revenue to produce net revenue as the top line on the income statement. Contra liabilities are common in companies that sell bonds to raise capital. To drum up interest in the bond, the company will sell it at a discount. For example, a bond with a principal amount of $1,000 may be sold for only $950.

Accumulated depreciation offsets a company’s real property assets, such as buildings, equipment and machinery. Accumulated deprecation represents the cumulative amount of depreciation expense charged against an asset. Contra asset accounts include allowance for doubtful accounts and accumulated depreciation.

Presentation of Contra Assets

https://bookkeeping-reviews.com/ EquityA contra equity account has a debit balance instead of a credit. The allowance for doubtful accounts – often called a “bad debt reserve” – would be considered a contra asset since it causes the accounts receivable (A/R) balance to decline. A contra asset is a negative account used in double-entry accounting to reduce the balance of a paired asset account in the general ledger.

The corresponding effect is charged to accumulated depreciation accounts. Accumulated depreciation accounts accumulate the depreciation expense charged on the asset.

Is a Contra Balances Negative or Positive?

When accounting for assets, the difference between the asset’s account balance and the contra account balance is referred to as the book value. There are two major methods of determining what should be booked into a contra account. Debit depreciation expense for $16,875 and credit accumulated depreciation-equipment for $16,875.

Contra accounts can get buried in the footnotes of financial statements, but they could be a key piece of your investigation into a growth stock’s prospects. By the end of the first-year machinery, the balance will be $100,000, and accumulated depreciation will show $20,000. By the end of 2nd-year, the machinery balance will still be $100,000, and accumulated depreciation will show $40,000. The netbook value of the machinery by the end of the first year will be $80,000 ($100,000-$20,000) and $60,000 ($100,000-$40,000) by the end of the second year. This method helps a third person identify what the book value was at the time of purchase and the remaining value of an asset. If we show $60,000 as an asset in the third year, it will be challenging to understand whether $60,000 is all new purchases or the remaining value of an asset. This account helps all the stakeholders understand the financial numbers accurately.