Contra inventory account definition — AccountingTools (2024)

FAQs

What is a contra inventory account? ›

A contra inventory account is a general ledger account that is paired with the inventory account, and which contains a negative balance that represents a reserve for obsolete or damaged goods.

Inventory obsolescence is an expense account, while the allowance for obsolete inventory is a contra asset account, which aims to reduce the inventory valuation on your balance sheet.

Contra Account. an account that is offset against another account. A contra account can be an asset with a credit balance or a liability with a debt balance.

A contra account is a negative account that is netted from the balance of another account on the balance sheet. The two most common contra accounts are the allowance for doubtful accounts/bad debt reserve, which is subtracted from accounts receivable, and accumulated depreciation, which is subtracted from fixed assets.

These are transactions that are recorded between cash and bank accounts. For example, a company withdraws cash from the bank account to meet its daily expenses and this entry is recorded as follows: cash Account is debited while the Bank account is credited.

For example, accumulated depreciation is a contra asset that reduces the value of a company's fixed assets, resulting in net assets. On a company's financial statements, the two items – the contra account and paired account – are often presented on a “net” basis: “Accounts Receivable, net”

Inventory is counted as an asset, and inventory reserve is counted as a contra asset, in that it reduces the net amount of inventory assets at the company.

A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. This type of asset account is referred to as "contra" because normal asset accounts might include a debit, or positive, balance, and contra asset accounts can include a credit, or negative, balance.

In accounting terms, the inventory reserve is a “contra” asset balance sheet account that reduces gross inventory value to arrive at a company's net inventory.

An adjunct account may be contrasted to a contra account. A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification.

What is a contra cost account? ›

A contra expense is an account in the general ledger that is paired with and offsets a specific expense account. The account is typically used when a company initially pays for an expense item, and is then reimbursed by a third party for some or all of this initial outlay.

In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

Contra entry refers to transactions involving cash and bank account. In other words, any entry which affects both cash and bank accounts is called a contra entry. Contra in Latin means the opposite. It is more popularly known as contra voucher.

To record a contra entry, you must record a payment against the sales and purchase invoices. However, as no money is being exchanged for the contra entry, these transactions shouldn't appear on your current account.

A contra entry is recorded in both sides of a triple column Cash Book in cash & bank columns and is denoted by 'C' in the ledger folio column.

A contra asset account is not classified as an asset, since it does not represent long-term value, nor is it classified as a liability, since it does not represent a future obligation.

In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

Contra assets may be stated in separate line items on the balance sheet. Or, if they contain relatively minor balances, they may be aggregated with their paired accounts and presented as a single line item in the balance sheet.

It is recorded as a "contra" account on the balance sheet.

Since a certain amount of credit losses can be anticipated, these expected losses are included in a balance sheet contra asset account.

Is withdrawal a contra account? ›

"Owner Withdrawals," or "Owner Draws," is a contra-equity account. This means that it is reported in the equity section of the balance sheet, but its normal balance is the opposite of a regular equity account. Because a normal equity account has a credit balance, the withdrawal account has a debit balance.

A contra expense account is a general ledger expense account that will intentionally have a credit balance (instead of the debit balance that is typical for an expense account). In other words, this account's credit balance is contrary to (or opposite of) the usual debit balance for an expense account.

The cost of goods sold is classified as an expense account rather than a contra-revenue account. A contra revenue account includes sales discounts, allowances, and returns that are tracked and offset the gross revenues collected.

A contra account is a general ledger account that offsets the balance of a corresponding account with which it's paired. If you debit the contra account, ensure that you offset the related account with a credit balance. In essence, contra accounts allow you to report your firm's gross and net amounts.

An adjunct account is a valuation account from which credit balances are added to another account. The concept of an adjunct account can be contrasted with the concept of a contra account, which decreases the amount of a liability account through a debit entry.

Expense accounts have a normal debit balance, which means they increase with debit entries. A contra account reduces an associated account, in our case, the expense account. A contra account will always have an opposite normal balance to its parent account.

A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. This type of asset account is referred to as "contra" because normal asset accounts might include a debit, or positive, balance, and contra asset accounts can include a credit, or negative, balance.

A Contra/Barter transaction is where two organisations agree to provide goods or services to each other for pre-agreed values. There is exchange of goods or services for other goods or services without using money.

To record a contra entry, you must record a payment against the sales and purchase invoices. However, as no money is being exchanged for the contra entry, these transactions shouldn't appear on your current account.

If an entry is made on the debit side and the same entry is recorded on the credit side of the cash book, it is called a contra entry. If a cheque is received and deposited into a bank account on the same date, it will appear on the debit side on the cash book in the bank column.

Are contra accounts permanent? ›

Answer and Explanation: A contra-account is a permanent account presented in the balance sheet.

Now let's focus our attention on the two most common contra assets – accumulated depreciation and allowance for doubtful accounts.

Contra equity has a debit balance. Revenue accounts have a credit balance. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance.