Contra Accounts

CFA Level I
#1

Hey Guys, me again…hope i’m not flooding the forum… Are all contra accounts listed as assest accounts? which have a negative balances?

#2

contra accout is one which has uncollected payment, i.e, account recivables that wont convert into cash.

#3

yes allowance for bad debts, however i wanted to know if all contra accounts are asset accounts with negative balances?

#4

i think it has to do only with recivables , so yes only asset account with negative balance

#5

I think they have a positive balance but they reduce net assets.

#6

if they have posative balance , how can they reduce net assets. my understanding it is forgone bad debt with liquidity zero

#7

Given my advice track record from yesterday I’m not sure if you should listen to me but this one I’m pretty sure on. A contra account in the accounting sense of the word just means opposite balance, so a contra-asset account has a credit balance as opposed to a debit balance. Which means that when it gets netted against the corresponding asset account it reduces it. Strictly speaking it doesn’t have a “negative” balance. And it is possible, although less common to have a contra-liability account which would be the same sort of thing with an opposite debit/credit setup.

#8

paul’s answer is on point. Accumulated depreciation, allowance for doubtful accounts, discount on bonds (a contra asset for bonds you buy, a contra liability for bonds issued) are all examples of contra accounts.

#9

level1_dec Wrote: ------------------------------------------------------- > i think it has to do only with recivables , so yes > only asset account with negative balance Nope, as mentioned there are other contra accounts outside of receivables.

#10

Thanks