Define Contra Asset Account

Similarly, if bills are overpaid, Accounts Payable may have a temporary debit balance. If a company is operating at a loss, Retained Earnings may have a debit balance. Eying the Trial Balance When reviewing the trial balance for errors, the first step is to eye the accounts to see that each account’s balance is in the proper debit or credit column. Even though intangible assets cannot be touched, they are still an essential aspect of operating many businesses.

Notice in Hershey’s case they are repurchasing stock and issuing stock from the treasury account. The issuance relates to the company’s share option program, which is a common reason to issue stock directly out real estate bookkeeping of the treasury account. The receivables ledger control account at 1 May had balances of $32,750 debit and $1,275 credit. Receipts from receivables amounted to $122,500 and cash discounts of $550 were allowed.


At the 1 January 20X3 Y acquired 80% of the share capital of Z for $750,000. At that date the share capital of Z consisted of 600,000 ordinary shares of $1 each and its reserves were $50,000. At the 1 January 20X2 Y acquired 75% of the share capital of Z for $400,000. At that date the share capital of Z consisted of 600,000 ordinary shares of 50c each and its reserves were $50,000. IAS 7 Statement of cash flows requires the statement of cash flows prepared using the indirect method to include the calculation of net cash from operating activities. On 1 April 2004 the balance on B’s accumulated profit account was $50,000 credit.

What is an example of a contra account?

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.

The value of the asset depreciates over time and you can write off a certain amount as an expense against taxes every year. Although you may need to pay all of the expense up-front, you cannot deduct all of that expense from your taxes in one go. Not all tangible assets are depreciated over time – only those that have a useful life for your business of more than one year.

Payment Terminal

Because in this situation, the bank is not being used, we can simply journal between the two control accounts. Over time, the depreciation of an asset will build up – the total depreciation over a period of time is known as “accumulated depreciation”. The “book value” of an asset is calculated by deducting the accumulated depreciation from the original purchase price.

Likewise, providing a price cut on your damaged items to your customers is a normal practice. Also, you may offer discounts on intervals for getting a larger customer base. These transactions are recorded in the accounts as contra revenue account. Amortisation is an accounting term used to describe the act of spreading the cost of a loan or intangible asset over a specified period with incremental monthly payments. This accounting function is to help companies cover their operating costs over time, while still being able to utilise and make money off of what they are paying off. Inventory costing $800 net of sales tax at 17.5% is purchased on credit.

Common Stock

In most cases the different classes of shares have the same economic rights . Below shows a snapshot of the balance sheet of the Hershey Company. The equity accounts are a part of the liabilities and stockholders’ equity section. Listed below is an overview of the various equity accounts shown in this balance sheet. The balance sheet of any business comprises of assets, liabilities, and equity.

What is a contra asset account?

Contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Contra asset accounts are recorded with a credit balance that decreases the balance of an asset. A key example of contra liabilities include discount on notes or bonds payable.

To begin, we’d like to discuss the difference between debits and credits. Create payment links, buy buttons, or QR codes with Square Online Checkout. All inclusive packages for growing businesses, including part time FD.

What is a Debit?

Because PSF requires the accounts to be set up on the purchase ledger and sales ledger separately, it is not possible to simply allocate the transactions off together. Instead a general journal must be posted between the two control accounts. $4,600 paid for motor van repairs was correctly treated in the cash book but was credited to motor vehicles asset account. A receivables ledger control account had a closing balance of $8,500. It contained a contra to the purchase ledger of $400, but this had been entered on the wrong side of the control account.

Define Contra Asset Account