Wednesday, August 3, 2011

Identify the contra accounts that have normal debit balances and explain why they are not considered expenses


A contra account is an account that is matched or paired to a related account and subtracted from it. Therefore, its normal balance is the opposite of the related account. Contra-revenue accounts are where you enter transactions that reduce gross earnings. Examples are Sales Discounts and Sales Returns and Allowances. Contra-revenue accounts have a normal debit balance. Sales Returns and Allowances is a contra revenue account and the normal balance is a debt. Sales Discounts is a contra-revenue account to Sales. Contra revenue accounts are offset against a revenue account on the income statement. Contra accounts always have a normal balance that is opposite to what they are contra to.

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