Contra accounts are used in instances where you want to show the net effect of two separate accounts on Financial Statements. Some common examples are netting Sales Returns against Sales and netting Allowance for Doubtful Accounts against Accounts Receivable.
Contra accounts can be netted from their related accounts by configuring your system correctly
- Establish the account as a contra account.
In the example of Sales Returns, you would use a revenue account (rather than an expense account), but the normal balance of this account will be a debit. In the example of Allowance for Doubtful accounts, use an asset account (rather than a liability account). The normal balance for this account will be a credit.
- Establish the account range in your Visual Chart Organizer
Set up the Header information for your accounts and select either the account category or the financial statement. (For Sales & Returns, select either Revenue or Income Statement, For Receivables and Doubtful accounts, select either Assets or Balance Sheet.)
In the Account View, on the Account Detail, ensure the accounts defined include both the main and contra accounts.
- Select the VCO template defined in step 2 on your Financial Statement
The contra accounts do not show in brackets, but will net from the main account.