Contra account
A contra account carries a balance opposite in sign to its related account and is netted against it on the balance sheet — for example accumulated depreciation against an asset's cost.
See it move
A machine's cost account carries a €40,000 debit balance. Accumulated depreciation, a contra-asset account, carries a €14,000 credit balance and is deducted from it. The carrying amount reported on the balance sheet is €40,000 minus €14,000, or €26,000. The same netting logic pairs €9,000 gross receivables against a €600 allowance, giving €8,400 net receivables.
The formula
Variables
- Net carrying amount (€)
- Gross balance of the main account (€)
- Contra account balance (€)
Gives the amount reported on the balance sheet once a contra account, such as accumulated depreciation, is netted against its related account.
Check yourself
A company's machinery cost account has a balance of €65,000. Accumulated depreciation on the machinery is €23,500. Separately, gross trade receivables are €12,000 and the allowance for doubtful debts is €900. What figure for machinery appears on the balance sheet?