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What is a Contra Account?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 August 2014
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    Conjecture Corporation
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Contra accounts are essentially any account found within the accounting records of a corporation or other official entity that carries a balance that is intended to offset the balance of related account. A contra account is considered to be the flip side of the story with the opposite account, and is often used as a means of demonstrating the relationship between various debits and credits within the overall financial structure of the corporation.

When it comes to an example of how one account offsets another account, perhaps the easiest illustration would be to take an account that records accumulated amortization into account. In order to balance the debit position associated with the amortization, an opposite or contra account with the balance sheet structure will represent a credit that essentially offsets the amortized figure. This helps to maintain a balance between debits and credits in the bookkeeping process.

However, it must be understood that the concept of the contra account does not always involve a credit offsetting a debit. The basic function of this type of account is simply to be an opposite of another account. This means that an account showing a debit would be a type of contra account usually known as a contra-liability account. By the same token, an account with a credit would be balanced by a contra-asset account.

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The concept of a contra account can also apply to investments as well. A broker who engages in working with another broker to successfully complete both the buy and the sell components of a transaction is functioning within a contra environment. Each broker is essentially the contra broker to the opposite broker, just as in accounting one account act as the opposite of another account.

In general, a contra account is simply a means of making sure that all aspects of transactions are accounted for in an orderly and timely manner. By employing this type of account, it is possible to look at the accounting records of a given corporation and trace back the history related to various debits and credits carried on the books, and how they relate to one another.

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discographer
Post 3

@anon16968-- It sounds like you were engaged in "contra trade" which is not directly related to contra accounts. Contra accounts are sometimes used for trade purposes instead of a regular money account if the item that is being traded does not have marketable value. It may also be the case that the trade has already taken place on paper and is accounted for in the list of contra accounts. Therefore, the actual exchange takes place without a re-transfer of money.

If the above circumstance does not apply to your situation, you might require a new stock certificate transfer in your name from the company to regain your stocks.

serenesurface
Post 2

I used to run a small store and one customer was also a supplier of goods for me. Initially, I tried to keep track of sales and purchases together in one account but this quickly became very confusing and difficult to keep up with. The contra account separated the pay account and the account in which I received payments. It also made life much easier when it was time to report taxes. I highly recommend using this.

anon16968
Post 1

I delivered a stock certificate to an online trading company appointing them attorney in fact as instructed by naming the online trading company attorney and signing my name on the back of the certificate.

The online trading company, without explanation, returned the stock certificate and failed to execute a stock power back to me.

What do I need from the online trading company so that I re-gain a marketable stock certificate?

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