Question

What is a contra account? How do revenue contra accounts, specifically, differ from expense accounts?

Answer 1

What is Contra Account?

• A contra account is offset the balance of another account.
• Transaction made to contra account presented under the on a compnay's financial statement under the related account.
• Sometimes balance in the two accounts merged for the presentaion purposes, so that only a net amount is presented.
• If the related account is asset account, then a contra asset account is used to offset it with a credit balance.
• If the related account is liability account, then a contra liability account is used to offset it with debit balance.
• Thus, the natural balance of a contra account is always the opposite of the account with which it is paired.

How do revenue contra accounts, specifically, differ from expense accounts?

• In a company's financial records, contra - revenues and expenses produce same ultimate result : They both reduce net income.
• The differance is that expenses represnt money that flows out of a company as it does business, while contra revenues represnt money that never comes in, or that comes in but turns around and goes right back where it come from.