What Is a Contra Asset in Accounting Terms?
In accounting, there are assets: what you own. You have the liabilities, which is what you owe. And you have the owner's equity---what you invested or retained. Then you have the contra assets. What are they, and what are some examples?
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The textbook definition
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The textbook definition of a contra asset is as follows: "An asset account with a credit balance, which is contrary to the normal balance of an asset account." An asset generally carries a debit balance while a liability generally carries a credit balance.
Debit Vs. Credit
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A debit is what you've "got" and is found on the left column. A credit is where it's from and it's found on the right side of the column. For example, the business owner purchases $1,000 worth of furniture, an entry would be made in the furniture column on the left side because he 'got' $1,000 worth of furniture. Since he took the $1,000 from his bank account to pay for it, there will be a credit entry on the right under his bank account.
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Banks and Debits
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Some insist that accountants have it all wrong when explaining credits versus debits. When they get their bank statements they see a deposit as a "credit" and a withdrawal as a "debit." To understand what seems to be "in reverse" accounting-wise, you have to understand that those statements are from the bank's point of view. A deposit you make is an amount they owe you and is therefore a credit on the right column. A withdrawal you make is money they no longer owe you and is a debit on the left column.
Contra Accounts
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Since the normal balance of an asset account is a debit (which would be in the left column), the contra-asset account's normal balance will be a credit (located in the right column). Accumulated Depreciation is a contra-asset account with a normal credit balance. The offset is in Depreciation Expense, which would be a debit.
Conclusion
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Contra-asset accounts can include accumulated depreciation or allowance for doubtful accounts. While these aren't actually assets that can be touched or sold, they have a value which must be balanced against the liabilities on the other side of the sheet.
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