Contra Asset Account

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Contra Asset Account

A contra asset account is an account that subtracts from an asset account.

Let’s say you have a truck worth $20,000 that will last five years. If you depreciated it evenly you would take $20,000, divide it by 5 and expense $4,000 each year. The first year the accumulated depreciation would be $4,000. On the balance sheet you would list the asset at $20,000 then show the $4,000 in accumulated depreciation being subtracted from it for a net value of $16,000. Accumulated depreciation is a contra account because it subtracts from the asset. If you have accounts receivable of $34,000 and an allowance for doubtful accounts of $4,000, on the balance sheet you would show your accounts receivable at $34,000, then show the $4,000 being subtracted from it for a net value of $30,000. Allowance for doubtful accounts is a contra account because it subtracts from the asset accounts receivable.

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