A contra account is a general ledger account which is intended to reduce another account. This other account is often referred to as its paired account.
The purpose of a contra account is to offset the balance of the paired account. The natural balance of a contra account is always the opposite of the account with which it is paired.
When you look at a financial statement you will see that a contra account sits directly below their paired accounts.
A common example of a contra account is Accumulated depreciation. This account is a contra asset account as it offsets fixed asset accounts. The normal balance for an asset is a debit and the normal balance for accumulated depreciation is a credit.
Here are some more examples of contra accounts:
- Drawings (Equity)
- Doubtful debts (Asset)
- Discount on bonds payable (liability)
- Sales return (Revenue)
- Sales discount (Revenue)
- Sales allowance (Revenue)