The contra revenue accounts are discounts and returns.
Revenue is an income statement account, but it flows through to the equity section of retained earnings as well. When a company repurchases shares, it increases the fractional ownership of all remaining shareholders. The main contra equity account is treasury stock, which is the balance of all stock repurchased by the company. The equity section of the balance sheet is where the shareholder's claims to assets are reported.
The bond is listed on the balance sheet at the full amount of $1,000, but the cash received is just $950, so a contra liability for the discount is listed to make the entry balance. For example, a bond with a principal amount of $1,000 may be sold for only $950. To drum up interest in the bond, the company will sell it at a discount. Contra liabilitiesĬontra liabilities are common in companies that sell bonds to raise capital. Companies like to depreciate assets as quickly as possible to get the tax savings, so the balance sheet may not state the true value of fixed assets. There can be hidden value in stocks that have a lot of fully depreciated buildings. It could be growing with bad accounts, and cash flow will be affected.Īccumulated depreciation is the total of all depreciation that has been charged to existing fixed assets such as equipment and buildings. If a company has a high or fast-growing allowance as a percentage of accounts receivable, keep a close eye on it. When the account receivable is written off, it is added to bad debt expense on the income statement and placed in the contra account. The company predicts which accounts receivable won't be paid by customers and writes those off. Here's how they work:Īllowance for doubtful accounts is netted from the accounts receivable balance. Contra assetsĪllowance for doubtful accounts and accumulated depreciation are the most common contra assets.
You can find contra accounts all over the balance sheet.