Contra Market: Meaning, Pros and Cons, Example

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on, top-rated podcasts, and non-profit The Motley Fool Foundation. Stocks and gold both sank in […]


Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on, top-rated podcasts, and non-profit The Motley Fool Foundation. Stocks and gold both sank in 2008, but gold turned higher earlier than stocks and ran to the upside into the 2011 high. The chart below shows the SPDR S&P 500 ETF versus gold futures (blue line), with the bottom indicator showing the correlation between the two assets. One advantage of contra markets is that they tend to be out of favor when the broader market is doing well, which may provide some opportunities for value investors to snatch up some deals. And Stellantis faced the most recent escalation of the U.A.W. walkouts when the union called out 6,800 workers at a large Ram pickup truck plant in Michigan on Monday and 5,000 workers at a G.M.

  • Excess, stored inventory will near the end of its lifespan at some point and, in turn, result in expired or unsellable goods.
  • This type of contra asset accounts is used for recording the depreciation within the timeframe of a fixed asset.
  • Often when a company extends goods on credit, management expects some of those customers not to pay and so anticipates writing off bad debt.
  • The heads can only be damaged when their split images align together.
  • In the past, once the union reached a deal with one automaker, tentative agreements with the others quickly followed.

A contra account is an entry on the general ledger with a balance contrary to the normal balance for that categorization (i.e. asset, liability, or equity). The difference between an asset's account balance and the contra account balance is known as the book value. Contra asset accounts also provide a clear picture of the companies’ accumulation of assets. Similarly, these accounts can also be essential in various calculations.

A contra asset account is an account that is used to offset another fixed asset account on the balance sheet. Contra asset accounts are typically used for accumulated depreciation, amortisation, and other accounting adjustments. For example, a company might have a contra asset account for depreciation expense and a separate asset account for equipment cost. Contra asset accounts are a type of contra account that net off against asset accounts. These include accumulated depreciation, accumulated amortization, allowance for receivables, obsolete inventory, and discount on notes receivables.

What are the Benefits of Factoring Your Account Receivable?

Instead of debiting the asset account directly, the contra asset account balance will be credited (reduced) separately. Some of the most common contra assets include accumulated depreciation, allowance for doubtful accounts, and reserve for obsolete inventory. Last, for contra revenue accounts there are sales discounts, sales allowances, or sales returns.

  • A contra account carries a balance that is opposite to the normal balance of its related main account.
  • Accumulated depreciation is the total of all depreciation that has been charged to existing fixed assets such as equipment and buildings.
  • In 2018, while stocks experienced a correction, gold also fell, although it experienced a small rally prior to the stock market bottom.
  • Home Depot also devotes footnote 4 to its share repurchase program and reports that the company is authorized by its board to repurchase $20 billion in shares.
  • During side view stages, the player can shoot leftward, rightward or upward while standing, as well as horizontally and diagonally while running.
  • Usually, credit balances include items from one of those two natures.

Instead, they are both depicted as shirtless commandos distinguished by the colors of their pants (blue for Bill and red for Lance). When one player loses all of their lives, they are given the option to use the other player's stock to keep fighting. Contra accounts provide more detail to accounting figures and improve transparency in financial reporting. In addition, the union called for an end to a system that pays new hires just over half of the top wage of $32 an hour.

The NES version introduces a seventh item that clears the screen of all on-screen enemies when obtained. The player loses a life if their character (Bill or Lance) comes into contact with enemies or their missiles, fails to complete a base stage before the time limit, or falls into a bottomless pit. When that happens, the character will revert to his default weapon on his next life. After losing all lives, the player can continue by inserting more coins (if necessary) and pressing Start, but only up to three times. A second player can join in anytime, but if one player loses all of their lives, they must wait until the other player loses their lives as well to continue together.

GAAP, the allowance for doubtful accounts represents management’s estimate of the percentage of “uncollectible” accounts receivable (i.e. the credit purchases from customers that are not expected to be paid). To record contra entries, traditionally a cash book with cash and bank columns is prepared financial calculator where both the aspects of the transaction will be entered in the same book which is Contra Book. In the below table, we have mentioned different types of business transactions and some of them are contra entry. The accounting entries for a discount on notes receivables are as follows.

Contra revenue accounts typically offset revenue accounts in a firm’s income statement. Contra equity accounts are accounts in the equity section of the balance sheet that reduce the amount of equity a company holds. Therefore, contra equity accounts have a debit balance to offset their corresponding equity balances. A debit will be made to the bad debt expense for $4,000 to balance the journal entry. Although the accounts receivable is not due in September, the company still has to report credit losses of $4,000 as bad debts expense in its income statement for the month. If accounts receivable is $40,000 and allowance for doubtful accounts is $4,000, the net book value reported on the balance sheet will be $36,000.

What Is a Contra Asset?

Revenue is an income statement account, but it flows through to the equity section of retained earnings as well. Any products that are sold at a discount or returns are deducted from gross revenue to produce net revenue as the top line on the income statement. Every contra asset account on a company’s accounting records will also have a pairing account. For example, accumulated depreciation will go along with related assets. Although contra-asset accounts have credit balances, they do not appear in liabilities or equity. Usually, credit balances include items from one of those two natures.

Examples of Contra Asset Accounts

These contras reduce the equity account and carry a debit balance. Contra equity reduces the total number of outstanding shares on the balance sheet. The key example of a contra equity account is Treasury stock, which represents the amount paid to buyback stock.

Conclusion for Contra in Accounting

The contra equity account would be used to offset the equity account on the balance sheet. This would give a more accurate picture of the company’s equity. The company would then have a contra liability account for the bonds. This would allow the company to track the amount of money that has been borrowed. The contra liability account would be used to offset the liability account on the balance sheet.

These accounts might also appear on the balance sheets of the company. ADAs are used to create allowances for clients that bought the company’s goods or services but somehow failed to pay the owed amount. The $10,000 of depreciation will reduce the book value of the car.

Contra Equity Account Example

To fund this account, the cash is transferred from the main cash account to petty cash account. Notes receivables are promissory notes that include a promise from a borrower to repay a lender. For companies, these represent receivables from various parties. The accounting entries for allowance for receivables are as follows.

That factory makes large sport utility vehicles including the Chevrolet Tahoe, the GMC Yukon and the Cadillac Escalade. And Stellantis are on strike across the country, including 8,700 workers at Ford’s Kentucky truck plant in Louisville, the company’s largest, and almost 10,000 others at Ford factories in Illinois and Michigan. President Biden, who had championed the union’s cause and joined a picket line on a visit to Michigan last month, hailed the accord.

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Contra asset accounts are hugely beneficial for nearly all types of companies. A contra asset account example is an accumulated depreciation account that will help the company track and offset fixed assets. By reporting contra asset accounts on the balance sheet, users of financial statements can learn more about the assets of a company. Contra asset accounts allow users to see how much of an asset was written off, its remaining useful life, and the value of the asset. Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Accumulated depreciation reflects the reduction in value of a fixed asset.

Stage 5 is another 3D stage set inside another base, while Stage 6 is another boss battle, this time against a pair of heads that split into two images each. The heads can only be damaged when their split images align together. The allowance method of accounting allows a company to estimate what amount is reasonable to book into the contra account. The percentage of sales method assumes that the company cannot collect payment for a fixed percentage of goods or services that it has sold. Rather, it is an adjunct account or a valuation account that is added to the face value of the bonds to arrive at the carrying value (or book value) of the bonds on the balance sheet.