Contra Revenue: Simplifying Returns, Discounts, And Allowances

In other words, contra sales revenue is the difference between gross revenue and net revenue. Thus, companies should ascertain whether or not offering sales discounts will truly benefit them in the long run. Another example is “2% 10/Net 30” terms, which means that a buyer will enjoy a 2% discount if he settles his balance within 10 days of the invoice date, or pays the full price in 30 days. It’s crucial to have an accounting and bookkeeping team (whether outsourced or internal bookkeeping) to help ensure accuracy for your contra account.

• The balance in the allowance for doubtful accounts is used to find out the dollar value of the current accounts receivable balance that is deemed uncollectible.
• Suppose the XYZ company recorded only one invoice in their accounting period.
• There is no answer to contra accounts…best i can guess is that QB does NOT have the ability.
• QB itself isn’t set up to handle something like this on its own, so manual entries is the only way I know of to take care of it.
• Sales Allowances contra revenue account records the value of reductions in selling price granted to buyers who agreed to accept a defective product instead of returning it to the seller.
• The discount on bonds payable amount shows the difference between the amount of cash received when issuing a bond and the value of the bond at maturity.
• You debit the contra revenue accounts and credit the corresponding revenue accounts.

How to Calculate Units of Activity or Units of Production Depreciation

Whereas assets normally have positive debit balances, contra assets, though still reported along with other assets, have an opposite type of natural balance. The list of asset accounts on your general ledger and balance sheet conveys the combined, potential value of all of the tangible and intangible items that your organization possesses. But in the real world, converting all of that potential into hard cash is highly unlikely, if not impossible.

• The transactions are sometimes recorded in one or more accounts, but the balance is usually a debit.
• This type of account could be called the allowance for doubtful accounts or a bad debt reserve.
• But sometimes, dissimilar transactions are important to consider together within a ledger.
• These accounts will typically help track sales discounts, product returns, and allowances (e.g., a price reduction for a good with minor defects).
• Treasury stock differs from other stocks in that it has no voting rights, and no dividends are paid to the treasury stock.
• Although you have not officially written off these debts yet, you show them to be a negative balance because you don’t believe the customer will pay you.

How to Calculate Annual Recurring Revenue (For SaaS Companies)

We can see how the $10,000 allowance for doubtful accounts offsets the $100,000 A/R account from our illustrative example above (i.e. the account decreases the carrying value of A/R). Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University. Examples of deferred unearned revenue include prepaid subscriptions, rent, insurance or professional service fees.

How to Account for Sales Discounts

The net Revenue balance on an income statement is calculated as gross Revenue minus all contra-revenue items like Sales Returns, Allowances and Discounts. In this way, the historical cost, the amount of write-off, and the book value of an asset contra expense account can always be seen on the balance sheet. There is no answer to contra accounts…best i can guess is that QB does NOT have the ability. Let me give you the detailed steps on how to set up a contra account for accumulated depreciation.

Contra equity accounts

• The purpose of the Accumulated Depreciation account is to track the reduction in the value of the asset while preserving the historical cost of the asset.
• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
• Because contra asset accounts are used so frequently, it’s worth spending a little bit more time on them here, including common subtypes.
• Asset accounts usually have a positive value which is the same as a debit balance.
• The most common contra equity account is called “treasury stock.” This special account decreases the number of shares outstanding in the market because the company repurchases some of the shares from its buyers.

If there’s an increase to allowance for uncollectible accounts, you record the same amount in the bad debt expense of your income statement. Similarly, accumulated depreciation accounts reduce the value of the fixed assets you report on your financial statements. 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.

Revenue Contra Account

These less-frequent contra accounts come into play when you need to account for changes in the outstanding liabilities for your business. For example, when your company borrows money, you would identify that debt in a Notes Payable account. Furthermore, if you subsequently pay off that debt early and capture a discount, the contra liability account — Discount Notes Payable — would record those savings. Another common contra liability account is a Discount on Bonds Payable account used by businesses that issue their own bonds.

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Accumulated Depreciation acts as a subaccount for tracking the ongoing depreciation of an asset. Each year of an asset’s life, another year of Depreciation Expense is recorded. The offset to the Depreciation Expense account is Accumulated Depreciation. 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 hottest retail item of today can be relegated to nostalgia channels on YouTube tomorrow. And when your business still has some of these outdated, unwanted, or unusable items in your inventory, you’ll want to offset the lost value of these assets in your general ledger and balance sheet.