She is an expert in personal finance and taxes, and earned her Master of Science in Accounting at University of Central Florida. The account Allowance for Doubtful Account is credited when the account Bad Debts Expense is debited under the allowance method.Ī contra account is an account used in a general ledger to reduce the value of a related account. Contra Asset Account – A contra asset account is an asset that carries a credit balance and is used to decrease the balance of another asset on the balance. Both of these accounts offset each other to represent a net balance on a company’s balance sheet. In essence, contra asset accounts have a negative balance while other asset accounts have a positive balance. These go against the normal asset accounts, which have a debit balance. Contra asset accounts get their name “contra” because they include a credit balance. Therefore, contra asset accounts differ from other accounts that have a credit balance. Overview: What Is A Contra Asset Account? “Daybooks” or journals are used to list every single transaction that took place during the day, and the list is totalled at the end of the day. Prepare the adjusting entry necessary to reduce accounts receivable to net realizable value and recognize the resulting bad debt expense. Others show only the single net figure with additional information provided in the notes to the financial statements. Some companies include both accounts on the balance sheet to explain the origin of the reported balance. Note that accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean. Examples include the owner’s drawing account, a dividend account, and the treasury stock account. An owner’s or stockholders’ equity account with a debit balance instead of the normal credit balance.

Contra returns guide