What are contra liability accounts?

In finance, a contra liability account is one that is debited for the explicit purpose of offsetting a credit to another liability account. Contra liabilities reduce liability accounts and carry a debit balance. In other words, the contra liability account is used to adjust the book value of an asset or liability.

What is contra revenue account?

What is Contra Revenue? Contra revenue is a deduction from the gross revenue reported by a business, which results in net revenue. Contra revenue transactions are recorded in one or more contra revenue accounts, which usually have a debit balance (as opposed to the credit balance in the typical revenue account).

Are contra revenue accounts liabilities?

The Contra Liability Account An example of a contra liability account is the bond discount account, which offsets the bond payable account. The two accounts together yield the carrying value of the bond. A contra liability account is not classified as a liability, since it does not represent a future obligation.

What are examples of contra revenue accounts?

A revenues account with a debit balance instead of the usual credit balance. Examples include sales returns, sales allowances, and sales discounts.

What is contra account why it is important?

Contra accounts are important because they allow a company to follow the matching principle by recording an expense initially in the contra asset account. The contra asset account is later reduced when the expense is recorded.

What is contra transaction?

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.

Which of the following accounts is a contra account?

Accumulated depreciation. The accumulated depreciation account is a contra asset account because it reduces the effective value of fixed assets of a firm. The accumulated depreciation represents the value of wear and tear faced by fixed assets such as plant, property, and equipment on account of being in operations.

What is the difference between Contra revenue and expense?

The difference is that expenses represent money that flows out of a company as it does business, while contra revenues represent money that never comes in, or that comes in but turns around and goes right back where it came from.

Why do we need contra accounts?

Why is contra asset important?

Importance of Contra Accounts A contra account always offsets the balance of a corresponding account. Any entry made to contra accounts is presented on a company’s balance sheet under the paired account. The contra accounts in the balance sheet help the users of the financial statement to get complete information.

What does contra asset mean?

A contra asset is a negative asset account that offsets the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

Is Deferred revenue a contra account?

Unearned revenue, also known as deferred income or prepaid earnings, is not a contra revenue account with a debit balance presented on an income statement, but rather a liability with a credit balance reported on a balance sheet.