Accounting Definitions of Contra-Revenues vs Expenses

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contra revenue account list

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Is Unearned Revenue a Contra Account?

Reserve for obsolete inventory is a contra asset account used to write down the inventory account if inventory is considered obsolete. Excess, stored inventory will near the end of its lifespan at some point and, in turn, result in expired or unsellable goods. In this scenario, a write-down is recorded to the reserve for obsolete inventory. A contra account is an asset account that is kept at either a negative or zero balance and is used on a balance sheet to offset the positive balance of a paired asset.

Definition of Sales Vs. Revenue

I’ll have to do it this way because the reimbursements were originally mis-catagorized as income, which violates GAAP. QB itself isn’t set up to handle something like this on its own, so manual entries is the only way I know of to take care of it. I strongly suggest having a trained Accountant do this (or something in a similar vein) if you need it done for your business.

Example of Contra Revenue in Sales Discounts

The balance sheet impact includes the remaining account receivable after returns and the estimated uncollectible. Since the entry for cash sales is recorded as a credit in a revenue account, then a return on sales will be recorded as a debit in the revenue contra account, Return on Sales or Sales Returns and Allowances. Although you may be familiar with the normal balance requirements of each classification, a contra account will have the opposite requirement. Expenses are the costs of doing business, but not all costs are expenses.

How Does a Contra Account Work in Accounting?

Consequently the net balance of the two accounts shows the net value of the sales after discounts. By reporting contra asset accounts on the balance sheet, users of financial statements can learn more about the assets of a company. For example, if a company just reported equipment at its net amount, users would not be able to observe the purchase price, the amount of depreciation attributed to that equipment, and the remaining useful life. Contra asset accounts allow users to see how much of an asset was written off, its remaining useful life, and the value of the asset. Contra equity is a general ledger account with a debit balance that reduces the normal credit balance of a standard equity account to present the net value of equity in a company’s financial statements.

  • Discounts are price reductions given under specific conditions such as early payment, bulk purchases, or during promotional sales events.
  • The allowance for doubtful accounts appears on the balance sheet and reduces the amount of receivables.
  • Instead, it is reported at its full amount with an allowance for bad debts listed below it.
  • In other words, its expected balance is contrary to—or opposite of—the usual credit balance in a revenue account.
  • An example of a contra liability account is the bond discount account, which offsets the bond payable account.
  • Nor would it count as a liability as it does not reflect a future obligation.
  • The most common contra type, contra assets, records the loss in value of any asset accounts listed in your general ledger.
  • The normal balance of a contra account, and the debit or credit, will be the opposite of the entry and normal balance in the parent account.
  • It’s crucial to have an accounting and bookkeeping team (whether outsourced or internal bookkeeping) to help ensure accuracy for your contra account.
  • The sales discounts account contains the amount of sales discounts given to customers, which is usually a discount given in exchange for early payments by them.

Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Accumulated depreciation reflects the reduction in value of a fixed asset. A contra liability is an account in which activity is recorded as a debit balance and is used to decrease the balance of a liability.

Revenues are presented at the top part of the income statement, followed by the expenses. Now, if that sounded like a lot of mumbo-jumbo jargon to you, don’t worry. In this article, we’re going on a deep dive into what exactly a contra account is, how contra accounts work, why and how you would use contra accounts and more. Please continue reading to delve into the details of contra-revenue accounts and the appropriate entries for them. A contra account enables a company to report the original amount while also reporting the appropriate downward adjustment.

contra revenue account list