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A contra account is a type of general ledger account that is used to reduce the value of a related account. Instead of carrying a positive balance, a contra account carries a negative balance and is paired with its associated account to show the net amount on financial statements. Common examples include accumulated depreciation (contra asset account) and allowance for doubtful accounts (contra asset account for accounts receivable). The use of contra accounts provides greater clarity and transparency in financial reporting by distinguishing between the original value and any reductions due to depreciation, returns, or allowances.
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The main purpose of a contra account is to record deductions or reductions from a related account, ensuring financial statements reflect net balances.
Yes, nonprofits use contra accounts to track things like depreciation on assets and allowances for doubtful pledges or receivables.
You can set up a contra account in Aplos by adding it to your chart of accounts and linking it to its corresponding asset, liability, or revenue account.
Common types include accumulated depreciation (contra asset), allowance for doubtful accounts, and sales returns (contra revenue).