Intangible assets are non-monetary assets that cannot be seen, touched, or physically measured. Notes PayableNotes Payable is a promissory note that records the borrower’s written promise to the lender for paying up a certain amount, with interest, by a specified date. Hearst Newspapers participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. Explain what to journal when there is more than one expense in one transaction. Investopedia requires writers to use primary sources to support their work.
A contra revenue account carries a debit balance and reduces the total amount of a company’s revenue. The amount of gross revenue minus the amount recorded in the contra revenue accounts equal a company’s net revenue. A transaction is made under the sales return account when a customer returns a product to the company for a refund. Sales allowance represents discounts given to contra expense account customers to entice them to keep products instead of returning them, such as with slightly defective items. The sales discount account represents the discount amount a company gives to customers as an incentive to purchase its products or services. The two common contra liability accounts, discount on bonds payable and discount on notes payable, carry normal debit balances.
If the related account has a debit as the natural balance, then the contra account will record a credit. For example, accumulated depreciation is a contra asset that reduces the value of a company’s fixed assets, resulting in net assets. For instance, the allowance for doubtful accounts reduces the net amount of accounts receivable, while the reserve for obsolete inventory does the same for inventory. Similarly, accrued liabilities reduce the total amount of current liabilities. Contra account is important as it not only allows a company to report the original amount of a transaction but also report any reductions that may have happened so that the net amount will also be reported.
Contra accounts provide more detail to accounting figures and improve transparency in financial reporting. It is an account used to decrease the value of the account related to the contra account. Accumulated Depreciation account for the respective asset account which is contra-asset account. Accounts in any business hold important information regarding different aspects of the entity and its operations. And to keep the information relevant and reliable these accounts needs to be updated to record all such transactions that relates to particular account.
Accumulated depreciation decreases the value of an asset, bringing it more in line with its market value. The entry to remove the asset and its contra account off the balance sheet involves decreasing the asset’s account by its cost and decreasing the accumulated depreciation account by its account balance. Expenses are the costs of doing business, but not all costs are expenses. In accounting terms, an expense is a cost incurred to produce revenue reported on the income statement. If you buy a pair of shoes from your supplier for $20, that’s a cost, but it’s not yet an expense. That’s because, as far as accounting is concerned, you haven’t really “spent” $20.
Explain the difference between revenue expenditures and capital expenditures and how both are recorded. Net receivables are the money owed to a company by its customers minus the money owed that will likely never be paid, often expressed as a percentage. Wage expenses of $3,200 have been incurred but are not paid as of December 31, 2017. Depreciation on the company’s equipment for 2017 is computed to be $18,000. Sales Returns account which is maintained against Sales account is basically contra-revenue account. If you keep a lot of inventory in stock, chances are that some of the inventory will become obsolete.
Contra equity reduces the total number of outstanding shares on the balance sheet. The key example of a contra equity account is Treasury stock, which represents the amount paid to buyback stock. Accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean. If a contra account is not used, it can be difficult to determine historical costs, which can make tax preparation more difficult and time-consuming. The benefit of using the contra expense account is that the company’s managers can see in account 4210 the total amount that the company paid to the health insurance company.
The discount on bonds payable amount shows the difference between the amount of cash received when issuing a bond and the value of the bond at maturity. For example, a building is acquired for $20,000, that $20,000 is recorded on the general ledger while the depreciation of the building is recorded separately. The proceeds from the sale will increase cash or other asset account. In accounting, intangible assets are defined as non-monetary assets that cannot be seen, touched or physically measured.
A contra account is a general ledger account with a balance that is the opposite of another, related account that it is paired with. That calculated amount is credited to either the appropriate intangible asset account or accumulated amortization account . This transaction records when a customer returns the paid goods, and a refund must be given.
Inventory is counted as an asset, and inventory reserve is counted as a contra asset, in that it reduces the net amount of inventory assets at the company. A contra entry is recorded when the debit and credit affect the same parent account and resulting in a net zero effect to the account. These are transactions that are recorded between cash and bank accounts. This account serves two purposes — tracking total depreciation expenses while providing you with the accurate book value of the asset being depreciated.
What is a Contra Expense? A contra expense is an account in the general ledger that is paired with and offsets a specific expense account. The account is typically used when a company initially pays for an expense item, and is then reimbursed by a third party for some or all of this initial outlay.