Bookkeeping 20. Contra accounts

Question 1

1. Taken together, the ASSET ACCOUNT and the CONTRA ASSET account reveal:

Answer 1

the net amount of fixed assets still remaining.

Question 2

2. Why is a CONTRA ASSET account classified as an ASSET?

Answer 2

IT IS NOT, since it does not represent long term value, NOR is it classified as a LIABILITY, since it does not represent a future obligation.

Question 3

3. What is a CONTRA LIABILITY account?

Answer 3

An example is the Bond Discount Account, which offsets the Bond Payable Account. The two accounts together yield the carrying value of the bond.

Question 4

4. A CONTRA LIABILITY account is not classified as a LIABILITY because:

Answer 4

It does not represent a future obligation.

Question 5

5. The Treasury Stock account is an example of:

Answer 5

a CONTRA EQUITY account. It is a DEDUCTION from equity because it represents the amount paid by a corporation to buy back its stock.

Question 6

6. What is a CONTRA REVENUE account?

Answer 6

It is a reduction from GROSS REVENUE, which results in NET REVENUE.

Question 7

7. CONTRA REVENUE transactions are recorded in:

Answer 7

one or more CONTRA REVENUE accounts, which usually have a Debit balance (as opposed to the credit balance in a typical revenue account).

Question 8

8. What are the three commonly used CONTRA REVENUE accounts?

Answer 8

1. Sales Returns
2. Sales Allowances
3. Sales Discounts.