Accounting Fundamentals

Question 1

What is a contra account?

Answer 1

A contra account is used in a general ledger to reduce the value of a related account when the two are netted together. A contra account’s natural balance is the opposite of the associated account. If a debit is the natural balance recorded in the related account, the contra account records a credit. For example, the contra account for a fixed asset is accumulated depreciation.

A contra account is an account used in a general ledger to reduce the value of a related account.
They are useful to preserve the historical value in a main account while presenting a decrease or write-down in a separate contra account that nets to the current book value.
Contra accounts are presented on the same financial statement as the associated account, typically appearing directly below it with a third line for the net amount.
Note that accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean.