Contra Account
An account that carries a balance opposite to its paired account, reducing it to show the net carrying value.
What is Contra Account?
A contra account is a balance sheet account that carries a balance opposite to its associated main account, effectively reducing the main account to its net carrying value. Contra asset accounts have credit balances and reduce gross asset values; contra liability accounts have debit balances and reduce gross liabilities. The most common contra account is accumulated depreciation, which reduces gross property, plant, and equipment to net book value. Another widely used example is the allowance for doubtful accounts, which reduces gross accounts receivable to the estimated net realizable amount. Using contra accounts preserves transparency by showing both the original cost and the cumulative reduction on the balance sheet.
Example
A company purchases equipment for $500,000 (recorded in the PP&E account). After three years of straight-line depreciation at $50,000 per year, the accumulated depreciation contra account has a credit balance of $150,000. The balance sheet shows gross PP&E of $500,000 less accumulated depreciation of $150,000, resulting in a net book value of $350,000 — giving readers both the original cost and the remaining carrying value.
Source: Investopedia — Contra Account