Home Depot has repurchased more than $72 billion of stock to date, with around $7 billion coming during this accounting period. Contra asset accounts also provide a clear picture of the companies’ accumulation of assets. Similarly, these accounts can also be essential in various calculations. As mentioned, companies do not represent these accounts on the balance sheet. However, they will still appear on the notes to the financial statements with necessary disclosures.

For example, GAAP accounting requires fixed assets to be reported at cost on the balance sheet, but, over time, that value depreciates as the assets are used. The balance sheet will show a gross fixed assets value, a contra account value for real estate bookkeeping accumulated depreciation, and a net value. All three values can be useful for investors depending on what they’re looking for. A contra equity account reduces the total number of outstanding shares listed on a company’s balance sheet.

What is a contra asset account?

The three common contra revenue accounts are sales allowance, sales return and sales discount accounts. A sales allowance account is used to record all the reductions that a company allows to its customers to buy defective or damaged goods. The entry would consist of debiting a bad debt expense account and crediting the respective accounts receivable in the sales ledger. A contra asset is a negative asset account that offsets the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account. By stating this information separately in a contra asset account, a user of financial information can see the extent to which a paired asset should be reduced.

Instead, it is reported at its full amount with an allowance for bad debts listed below it. Maybe more importantly, it shows investors and creditors what https://time.news/how-can-retail-accounting-streamline-your-inventory-management/ percentage of receivables the company is writing off. Normal asset accounts have a debit balance, while contra asset accounts are in a credit balance.

Contra Asset Journal Entry Accounting

Although the accounts receivable is not due in September, the company still has to report credit losses of $4,000 as bad debts expense in its income statement for the month. If accounts receivable is $40,000 and allowance for doubtful accounts is $4,000, the net book value reported on the balance sheet will be $36,000. A contra account offsets the balance of a corresponding account.

A contra account is a special type of account that reduces the value of another account. It’s like a helper account that works in the opposite direction. For example, if you have an account for your car worth $10,000, you might also have a contra account for depreciation that reduces the value of your car account over time. Contra asset accounts are necessary for companies for various reasons. The most prominent of these include allowing companies to present a more accurate picture of their assets. Allowance for receivables is an account that companies maintain to record possible bad debts.