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What is a ‘contra account’ and why are they used?

What is a ‘contra account’ and why are they used?

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A contra account is the account corresponding to any related assets that will result in presenting the value of that related account as Net. Normally One account will have Debit balance & another account will have credit balance.

They are used to present the net value of related account on the financial statements. For example in case of accounts receivable, related account is Accounts receivable And its contra account is Allowance for Doubtful Account. Similarly , in case of Equipment , related account is Equipment and its Contra account is Accumulated Depreciation - Equipment.

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