Definition of 'Contra Account'
For example, if a company sells a product for $100 and offers a 10% discount, the company would record the sale as a $90 sale and a $10 discount. The $10 discount would be recorded in a contra account called "Discounts."
Contra accounts are used to make the financial statements more accurate. By recording discounts, returns, and allowances in separate accounts, the company can get a more accurate picture of its sales and profits.
Contra accounts are also used to make the financial statements easier to read. By separating out the discounts, returns, and allowances, the company can make it easier for investors and creditors to understand its financial performance.
Contra accounts are an important part of financial accounting. They help to make the financial statements more accurate and easier to read.
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