It holds opposite sign for a particular type of account. A contra account is used in a general ledger to reduce the value of a related account when the two are netted together. When you capitalize these commissions, use a contra expense account to reduce the expense. Accumulated depreciationAccumulated DepreciationAccumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. Another description of a contra expense account is an account that reduces or offsets the amounts reported in one or more of the other general ledger expense accounts. In the above case, the CR amount is $2000.00 which will be adjusted from sales to $15000.00 and in the accounting book sales to be recorded at $13000.00. You are already subscribed. One use of a contra expense account is to record the amounts of expenses that were reimbursed by its employees. In other words, debiting an expense account increases the balance instead of decreasing it like most other equity accounts. account with a balance opposite the normal accounts in its category If you are not using the reconciliation feature to record finance charges and fees then include a second GL Account number for your credit card fees expense account. Contra entries are those entries in which same account can be debited and credited in contrary situation.For example we debit Bank account when depositing cash.At the same time we credit bank account when withdrawing money from bank. Copyright © 2021 AccountingCoach, LLC. A contra expense is an account in the general ledger that is paired with and offsets a specific expense account. M/s L&T Limited sells the construction equipment machines to M/s ABC & Company for $15000.00 on Credit. Income Statement: Retail/Whsle - Corporation, Multiple-Step. For example, Company M might debit its expense account 4210 Employee Health Insurance Expense when recording the insurance company invoice of $10,000. A contra account will always have an opposite normal balance to its parent account. It is not classified as a liability since it does not represent a future obligation. Read more about the author. Accounting; Anonymous (SVP) | Nov 5, 2015. Therefore, a contra expense account that contains a debit balance must have a negative ending balance. The four basic steps in the closing process are: Closing the revenue accounts —transferring the credit balances in the revenue accounts to a clearing account called Income Summary. Or, find the imported expense transaction in the bank account, and select it to open the transaction details pane. The opposite is true for a liability account. Crediting directly to commission expense will understate your gross wages paid. In Accounting terms, a contra account refers to an account which is balanced against an account. As a program, expenses related to MDF programs can ALWAYS be classified as Contra, if the financial decision-makers so desire. Examining a trend line of the monthly additions to a contra expense account is a good way to determine whether any third party payments were not made to the company, or if two of these payments were incorrectly recorded within the same month. Click New on the upper right. However… Expenses related to MDF reimbursements only CONDITIONALLY qualifies as Opex, to comply with the full requirements. Allowance for doubtful accountsAllowance for Doubtful AccountsThe allowance for doubtful accounts is a contra-asset accoun… Common examples of contra assets include: 1. Only revenue, expense, and dividend accounts are closed—not asset, liability, Common Stock, or Retained Earnings accounts. Let's say Company A is working on a project to partner up with Company B. 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