Contra means against. In bookkeeping terms, a contra asset account refers to an account which is offset against an asset account.
When the two balances are offset against each other they show the net balance of both accounts.
Contra asset accounts are useful when in bookkeeping terms a business needs to keep the two accounts separate so as not to lose information, but for presentation reasons in the financial statements, it is necessary to offset them against each other and show a net balance.
Examples of Contra Asset Accounts
The two most common examples of contra asset accounts are the accumulated depreciation contra account, and the allowance for doubtful debts contra account.
Accumulated Depreciation is a Contra Asset Account
The accumulated depreciation contra asset account records the depreciation to date of a fixed asset. The accumulated depreciation normal balance is a credit balance and in use is offset against the fixed asset account which is normally a debit. The net balance of the two accounts shows the net book value of the fixed asset. Using the two accounts, allows information about the original cost of the fixed asset to be maintained on the fixed asset account, and details of the depreciation of the asset to be maintained on the accumulated depreciation contra asset account
In the trial balance the accounts would appear as follows.
| Account | Debit | Credit | Notes |
| Fixed assets | 4,000 | Asset a/c | |
| Accumulated depreciation | 3,000 | Contra asset a/c | |
| ….. |
In the financial statements the asset account would be offset against the contra asset account to show the net balance.
| Fixed assets | 4,000 | Asset a/c |
| Accumulated depreciation | 3,000 | Contra asset a/c |
| Net book value | 1,000 | Net balance after offset |
Allowance for Doubtful Accounts
The allowance for doubtful debts contra asset account records the allowance for doubtful debt provision to date of an accounts receivable. The account is normally a credit balance and in use is offset against the accounts receivable account which is normally a debit. The net balance of the two accounts shows the net realizable value of the accounts receivable. Using the two accounts allows information about the original value of the accounts receivable to be maintained on the accounts receivable account, and details of the allowance for the doubtful accounts to be maintained on the allowance for doubtful accounts contra asset account
In the trial balance the accounts would appear as follows.
| Account | Debit | Credit | Notes |
| Accounts receivable account | 6,000 | Asset a/c | |
| Allowance for doubtful debts account | 1,000 | Contra asset a/c | |
| ….. |
In the financial statements the asset a/c would be offset against the contra asset a/c to show the net balance.
| Accounts receivable | 6,000 | Asset a/c |
| Allowance for doubtful debts account | 1,000 | Contra asset a/c |
| Net accounts receivable | 5,000 | Net balance after offset |
Contra asset accounts are the most commonly encountered, however, a business can also have other forms of contra accounts including:
- Contra revenue account – for example, sales returns and allowances account.
- Contra equity account – for example, owner’s drawings account, treasury stock account
- Contra liability account – for example, discount on bonds payable account
- Contra expense account – for example, expense reimbursement by employees account
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.