This contra account holds a reserve, similar to the allowance for doubtful accounts. For each debit against the inventory account, there will be a corresponding credit against the obsolete inventory contra account. A contra asset is a negative account used in double-entry accounting to reduce the balance of a paired asset account http://pervenec.com/pozdnyaya-beremennost/novye-sankcii-v-ukraine-kakie-kategorii-lic-oshhutyat-na-sebe-izmeneniya.html in the general ledger. Contra accounts are used to reduce the value of the original account directly to keep financial accounting records clean. This means that accounts receivables have a debit balance of $10,000, and the firm credits revenue for $10,000. A customer returned $100 worth of items, claiming them to be defective.

In this way, the historical cost, the amount of write-off, and the book value of an asset can always be seen on the balance sheet. Companies that hold inventories for a long time may face accumulating obsolete inventory. The accounting entries for allowance for receivables are as follows. My Accounting http://aceweb.ru/index.php?directory=a/010&page=4 Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

Is Accounts Receivable a Contra Account?

Whereas assets normally have positive debit balances, contra assets, though still reported along with other assets, have an opposite type of natural balance. When a contra asset account is first recorded in a journal entry, the offset is to an expense. For example, an increase in the form of a credit to allowance http://motorzlib.ru/books/item/f00/s00/z0000006/st005.shtml for doubtful accounts is also recorded as a debit to increase bad debt expense. Contra equity accounts are accounts in the equity section of the balance sheet that reduce the amount of equity a company holds. Therefore, contra equity accounts have a debit balance to offset their corresponding equity balances.

Accounts receivable (A/R) has a debit balance, but the allowance for doubtful accounts carries a creditbalance. The difference between an asset’s account balance and the contra account balance is known as the book value. The allowance method of accounting allows a company to estimate what amount is reasonable to book into the contra account.

Presentation of Contra Accounts

For example, Accumulated Depreciation is a contra asset account, because its credit balance is contra to the debit balance for an asset account. This is an owner’s equity account and as such you would expect a credit balance. Other examples include (1) the allowance for doubtful accounts, (2) discount on bonds payable, (3) sales returns and allowances, and (4) sales discounts. For example net sales is gross sales minus the sales returns, the sales allowances, and the sales discounts. The net realizable value of the accounts receivable is the accounts receivable minus the allowance for doubtful accounts.