Our AI-powered tool gives you daily access to your company’s finances while our expert finance team double-checks the numbers every step of the way. The sales returns account contains either an allowance for returned goods, or the actual amount of revenue deduction attributable to returned goods. It is especially important to track sales returns separately and on a trend line, since this can provide important evidence of problems with a company’s products that are causing customers to return goods. It can help companies see the complete picture of their income and expenses and their equity or net worth.
The company uses Straight-Line Depreciation to track the loss of value of the asset over time. No salvage value is expected at the end of the van’s useful life. ABC Computers makes sales of 90,000; unfortunately, due to a fault in a product, they received returns of 2,500.
Double Entry Bookkeeping
So, the accumulated depreciation account which is a contra asset account has a negative balance and it reduces the balance of the asset account. Including contra accounts on a balance sheet is important as it allows for a more transparent view of a company’s financial position. This is done by separating the decreases that have occurred in the contra account from what is contra revenue the original transaction amount. This allows the reader to see both the current and historical book values for a particular asset or liability. Sales returns, sales allowance and sale discounts are different examples of contra revenue accounts. Contra accounts such as these have a debit balance and are deducted from the total amount of a company’s revenue.
A contra expense account is an account used to reduce the amount of an expense without changing the balance in the main expense account. Examples of contra expense accounts include Purchase Returns, Purchase Discounts, and Advertising Reimbursements. When recording assets, the difference between the asset’s account balance and the contra account balance is the book value of the asset. At the end of year 20, the car and the accumulated depreciation accounts will be written off from the balance sheet, as the car will be a fully depreciated asset. In your income statement, the gross sales are $50,000 less than the sales returns and allowances of $1000.
Time Value of Money
That is done by crediting accounts receivable by $100 and debiting the contra revenue account sales returns and allowances for $100. Hence, the company will have gross revenue or net sales equal to $9,900. 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.
- When the company pays the cost of having the flyer printed, a journal entry is done.
- A contra account is an account that is used to offset another account.
- It is especially important to track sales returns separately and on a trend line, since this can provide important evidence of problems with a company’s products that are causing customers to return goods.
- Contra accounts are used to help a company report the original amount of a transaction as well as reductions that may have happened.