Contra accounts
Objective: Identify contra accounts and their normal balances.
Recommended first: Normal balances
A contra account is paired with another account and reduces it. Its normal balance is opposite to the account it offsets. Contra accounts let a business show both the original amount and the reduction.
| Contra account | Offsets | Normal balance |
|---|---|---|
| Accumulated Depreciation | Equipment, Vehicles | Credit |
| Allowance for Doubtful Accounts | Accounts Receivable | Credit |
| Sales Returns and Allowances | Sales Revenue | Debit |
| Sales Discounts | Sales Revenue | Debit |
For example, equipment costing $10,000 with $3,000 of accumulated depreciation has a book value of $7,000. Both figures appear on the balance sheet.
Contra accounts are about keeping information, not hiding it. Showing Equipment at its full cost alongside Accumulated Depreciation tells a reader both what was paid and how much has been used. Likewise, Sales Returns kept separately from Sales reveals how often customers return goods — useful for an owner trying to improve quality.
Check your work
- Does the contra account carry the opposite balance to its partner?
- Is the original account left at its full amount?
- Is net (book) value computed as the difference?
Monthly depreciation of $150 is credited to Accumulated Depreciation, not to Equipment, so original cost stays visible.
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense | $150.00 | |
| Accumulated Depreciation – Equipment | $150.00 |
Common mistakes
✗ Crediting the asset directly for depreciation.
✓ Credit the contra account so cost and accumulated depreciation are both visible.
Guided practice
Use hints freely here.
Item 1 of 1
Classify: Accumulated Depreciation – Equipment
Classify the account “Accumulated Depreciation – Equipment”. Choose its account type, its normal balance, and the financial statement where it is reported.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 4
Classify: Allowance for Doubtful Accounts
Classify the account “Allowance for Doubtful Accounts”. Choose its account type, its normal balance, and the financial statement where it is reported.
Progress is saved on this device. Create a free account to keep it everywhere.
Key terms
- Contra account
- An account that reduces a related account.
- Accumulated depreciation
- Total depreciation recorded on an asset to date.
- Book value
- Cost minus accumulated depreciation.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.