What does the word “contra” mean in accounting?

Question: What does the word “contra” mean in accounting?

In accounting, the word "contra" refers to an account that is used to offset or reduce the balance of another account. A contra account is established to record transactions that are the opposite of the primary account.

For example, a contra account for accounts receivable is called an allowance for doubtful accounts, which is used to reduce the amount of accounts receivable to its net realizable value. Another example is the accumulated depreciation account, which is a contra account for the fixed asset account and is used to reduce the original cost of the asset to its book value.

The term "contra" is used to distinguish these types of accounts from the primary accounts they offset, as they are usually listed alongside the primary account with the prefix "contra" in the account name. The use of contra accounts helps to provide a more accurate representation of a company's financial position and to ensure that financial statements adhere to Generally Accepted Accounting Principles (GAAP).

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