Definition: Contra Accounts are set up for the purpose of offsetting the balance of a related account.
A contra account is considered to be used as a way of showing the relationship between certain debits and credits with the overall financial structure of an entity.
There are a number of situations where one account is used to offset another. One popular example is accumulated amortization, which is a contra-asset account; meaning that it acts in the opposite way of a regular asset account.
Assets are debited when increased, and contra-assets are credited when increased.
In this way, the accumulated amortization account would offset the related asset account, which is recorded as a debit. It is important to note that there are also contra-liability accounts, where an account with a debit balance offsets a liability account.
By using the concept of a contra account, it is possible to simply look at the accounting records of a given corporation and trace backwards the history related to certain debits and credits in the books, and how they are related to one another.
Reviso Cloud Accounting Limited 1st Floor, Healthaid House Marlborough Hill Harrow Middlesex HA1 1UD -- Support: 08456 800 473 Fax: 08456 800 472 Email: help@reviso.com © 2002 - 2020 Reviso Cloud Accounting Limited. All rights reserved. Privacy Policy