Contra revenue definition

That is because some of the bonds are issued at a discount, so this reduces the balance of their bonds payable. Contra revenue is a general ledger account with a debit balance that reduces the normal credit balance of a standard revenue account to present the net value of sales generated by a business on its income statement. Examples of revenue contra accounts are Sales Discounts, Returns and Allowances.

Therefore, a contra asset can be regarded as a negative asset account. Offsetting the asset account with its respective contra asset account shows the net balance of that asset. For example, when a line item on your balance sheet presents the balance of accounts receivable, report the value of allowance of uncollectible accounts below the accounts receivable line. Be sure to enter the contra account on the opposite column of the account they’re offsetting. If contra assets appear in the credit column, record contra liabilities on side. It would give a more accurate picture of the company’s fixed assets.

Contra Asset

Accumulated depreciation is a contra asset account used to record the amount of depreciation to date on a fixed asset. Examples of fixed assets include buildings, machinery, office equipment, furniture, vehicles, etc. The accumulated depreciation account appears on the balance sheet and reduces the gross amount of fixed assets. A contra account is a negative account that is netted from the balance of another account on the balance sheet.

Whereas assets normally have positive debit balances, contra assets, though still reported along with other assets, have an opposite type of natural balance. Contra equity reduces Law Firm Bookkeeping 101 the total number of outstanding shares on the balance sheet. The key example of a contra equity account is Treasury stock, which represents the amount paid to buyback stock.

What Is A Contra Asset Account?

If you have investments that earn interest, you will need to create an Interest Revenue account. Here is an example of a journal entry you would create when you make a sale (using accrual accounting). If you want to compare your business’s revenue from period to period, look at your operating revenue.

To illustrate, let’s use the contra asset account Allowance for Doubtful Accounts. Since it is a contra asset account, this allowance account must have a credit balance (which is contrary to the debit balances found in asset accounts). The Allowance for Doubtful Accounts is directly related to the asset account entitled Accounts Receivable.

Example of a Contra Account

This can help anyone viewing the financial information to find the historical cost of the asset. The accumulated depreciation amount shows how much depreciation expense has been charged against an asset. Accumulated depreciation decreases the value of an asset, bringing it more in line with its market value. Record incoming money from main business operations in your Revenues/Sales account. For example, Service Revenue is a type of account that records sales from services you perform.

• Examples of contra liabilities are Discounts on Bonds and Notes Payable and Short-Term Portion of Long-Term Debt.
• Normal asset accounts have a debit balance, while contra asset accounts are in a credit balance.
• Contra accounts play an important role in accounting by helping businesses track certain aspects of their finances more accurately.
• They pertain not only to our conduct within the company but also to conduct involving our customers, channel partners, suppliers and competitors.
• Examples of contra accounts include allowance for doubtful accounts, reserve for obsolete inventory, and accrued liabilities.
• Therefore, the book value of an asset in the books is equal to its historical cost (the debit balance of the asset) minus the related amount of contra asset in the balance sheet (the credit balance of the contra asset).

Last, for https://simple-accounting.org/how-to-start-your-own-bookkeeping-business-for/ accounts there are sales discounts, sales allowances, or sales returns. These contra revenue accounts tend to have a debit balance and are used to calculate net sales. Close contra-revenue accounts and expense accounts with debit balances.

Understanding a Contra Account

Sometimes, it is important to keep the original balance of the accounts and create the contra accounts to be able to calculate the net value of the account. Understanding why a contra-revenue channel marketing program enables channel managers to be more strategic. They can combine https://turbo-tax.org/specialized-tax-services-sts-accounting-method-pwc/ the right programs and adjust the investment amounts in each program to better align channel payouts to the brand owner’s growth strategies. Instead of being against (contra) revenue, the outcome is long-term results and strong, consistent sales performance from a loyal channel.

• These three types of contra accounts are used to reduce liabilities, equity, and revenue which all have natural credit balances.
• To compete against other brands, companies often have to offer better prices than the competition.
• On the other hand, if you’re looking at a high-flying growth stock that reports new revenue growth records each quarter but has a massive allowance for doubtful accounts, there may be problems ahead.
• Accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean.
• Contra liability accounts are typically used for bonds, notes payable, and other indebtedness.
• In other words, accumulated depreciation will be $10,000 each year until the car depreciates to $0 twenty years later.