Jasz
VIP Contributor
A contra account is a type of expense account in business that is used to offset the income from another account. This can be used for items such as depreciation, amortization and other types of expenses that do not show up directly on a company's income statement. Contra accounts can also be used to record unexpected gains or losses when they are related to an operating activity.
The use of contra accounts is not required by GAAP, but they are commonly used by companies and may be required by some regulators. A company can choose to use contra accounts if it feels it would make its financial statements easier to read or more understandable for investors and analysts.
For example, if a company has sales revenue coming in from multiple sources and only one of them has any COGS expense, then it could show this as a contra account on its income statement, under direct costs of goods sold (DCOGS). This would allow investors and analysts to see how much COGS is included in each sale without having to calculate it themselves from other figures included on the financial statements.
Contra accounts can also be used for accounting purposes where there are no corresponding assets or liabilities related to an activity.
The use of contra accounts is not required by GAAP, but they are commonly used by companies and may be required by some regulators. A company can choose to use contra accounts if it feels it would make its financial statements easier to read or more understandable for investors and analysts.
For example, if a company has sales revenue coming in from multiple sources and only one of them has any COGS expense, then it could show this as a contra account on its income statement, under direct costs of goods sold (DCOGS). This would allow investors and analysts to see how much COGS is included in each sale without having to calculate it themselves from other figures included on the financial statements.
Contra accounts can also be used for accounting purposes where there are no corresponding assets or liabilities related to an activity.
