What is a Contra Asset Account?

May 19th, 2015
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A contra asset account is an asset account where the balance will be either a credit balance or a zero balance. (A debit balance in a contra asset account will violate the cost principle.) Since a credit balance in an asset account is contrary to the normal or expected debit balance the account is referred to as a contra asset account.

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What is a contra asset account?A contra asset account is an asset account where the balance will be either a credit balance or a zero balance. (A debit balance in acontra asset account will violate the cost principle.) Since a credit balance in an asset account is contrary to the normal or expecteddebit balance the account is referred to as a contra asset account.The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with property, plantand equipment and it is credited when Depreciation Expense is recorded. Recording the credits in the Accumulated Depreciationmeans that the cost of the property, plant and equipment will continue to be reported. Reporting the accumulated depreciationseparately allows the readers of the balance sheet to see how much of the cost has been depreciated and how much has not yetbeen depreciated.Another contra asset account is Allowance for Doubtful Accounts. This account appears next to the current asset AccountsReceivable. The account Allowance for Doubtful Account is credited when a company enters estimated amounts as debits to BadDebts Expense under the allowance method. The use of Allowance f

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