Contra Account

What is a Contra Account?

A contra account is an account that balances on the opposite side to the typical balance in its class.

How it Works

Some asset, liability, and equity items lose value over time.

For example, a business may buy equipment.

They will pay a certain amount of money for the equipment.

Wear and tear will reduce this value.

This loss of value is known as depreciation.

You need to show how this depreciation affects the asset’s value.

However, to do this, you don’t reduce the asset’s value directly.

Instead, you record the depreciation in an accumulated depreciation account. 

The accumulated depreciation account keeps track of accumulated depreciation.

The account is a separate account attached to the asset account.

It is classified as a valuation account.

By deducting accumulated depreciation, you can determine the asset’s current value.

It is also classified as a contra account.

Contrary to other asset accounts, it balances on the credit side.

© R.J. Hickman 2020