Meaning Of Contra Revenue In Accounting

A contra revenue account reduces a company s gross revenues to net revenues.

Meaning of contra revenue in accounting. Contra comes from a latin contra meaning against or opposition contra revenue account usually means a deduction from the gross revenue which results in net revenue. Sales returns is a contra revenue account as the figure is a negative amount net against. What is a contra revenue account. Here is an example to illustrate what we have described.

What is a contra account. A contra account is an account with a balance opposite the normal accounts in its category. Contra accounts are usually linked to specific accounts on the balance sheet and are reported as subtractions from these accounts. Contra revenue is a deduction from the gross revenue reported by a business which results in net revenue contra revenue transactions are recorded in one or more contra revenue accounts which usually have a debit balance as opposed to the credit balance in the typical revenue account there are three commonly used contra revenue accounts which are.

Definition of contra revenue account. A contra revenue account is a revenue account that is expected to have a debit balance instead of the usual credit balance in other words its expected balance is contrary to or opposite of the usual credit balance in a revenue account. Contra revenue accounts are commonly encountered however a business can also have other forms of contra accounts including. If a debit entry is recorded in an account it will be recorded on the credit side and vice versa.

If company k sells 100 000 of merchandise on credit the accounting entry is a debit to accounts receivable for 100 000 and a credit to sales for 100 000. It adversely affects many accounts such as cash account if the company sells the goods on cash debtors account if the company sells the goods on credit stock account and sales account as the same as reversed. Accounting of contra revenue is very complicated as the same is increased accounting work. In the dual entry accounting system a contra entry is an entry which is recorded to reverse or offset an entry on the other side of an account.

A contra account is an account used in a general ledger to reduce the. Knowing the balance between gross revenue and net revenue and the cause of difference will surely benefit your business. Bad debt expense definition. Contra asset account for example depreciation allowance for doubtful debts.

In other words contra accounts are used to reduce normal accounts on the balance sheet.