Define: Contra Account

A contra account is a type of account that is used to offset the balance of another account. It is typically used to reduce the value of an asset or liability account.

A contra account works by reducing the balance of the corresponding account. For example, a contra asset account is used to reduce the value of an asset account, while a contra liability account is used to reduce the value of a liability account.

Some examples of contra accounts include accumulated depreciation (which offsets the value of a fixed asset), allowance for doubtful accounts (which offsets accounts receivable), and discount on bonds payable (which offsets the value of bonds payable).

Contra accounts are used to provide a more accurate representation of the net value of an asset or liability. By offsetting the balance of the main account, contra accounts help to reflect any adjustments or reductions in value.

Contra accounts are not specifically required by law, but they are commonly used in financial reporting to provide a more accurate representation of a company’s financial position.

Yes, contra accounts can be used for tax purposes. They help to accurately reflect the value of assets or liabilities, which can impact the calculation of taxable income.

Yes, contra accounts can be adjusted or reversed if there are changes in the value of the corresponding main account. For example, accumulated depreciation can be adjusted as the asset depreciates over time.

There are no specific legal restrictions on the use of contra accounts. However, companies must ensure that their financial reporting complies with applicable accounting standards and regulations.

Yes, contra accounts can be audited as part of a company’s financial statement audit. Auditors will review the contra accounts to ensure their accuracy and compliance with accounting principles.