contra account

Definition

An account that offsets another account on the balance sheet, like accumulated depreciation playing bad cop to your asset's good cop. It reduces the value of the related account without actually touching it.

Example Usage

We use a contra account for sales returns and allowances so we can track how much product comes back while keeping the gross revenue looking impressive.

Origin

From Latin 'contra' meaning 'against,' adopted in double-entry bookkeeping terminology

Fun Fact

Allowance for doubtful accounts is a contra account that essentially says 'we know some customers will stiff us, here's our educated guess on how much.'

Source: Generally Accepted Accounting Principles (GAAP)

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