contra asset account

Definition

A balance sheet account in the financial statements that offsets a related asset account. Contra asset accounts are subtracted from a related asset account since asset accounts have debit balances while contra assets have credit balances. For instance, the contra asset account "Allowance for Doubtful Accounts" is deducted from the asset "Accounts Receivable" to arrive at a net amount which is referred to as net or book value.

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You should try to keep a contra asset account that you can break down to figure out the right way to proceed.

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In order to track depecreciation on the plant machinery, Business Place, Inc. developed a contra asset account to record all depreciation expenses.

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When he looked at the contra asset account, he realized that the allowances made for clients who had never paid still allowed him to collect $40,000 a month at his law firm.

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