What is the purpose of using contra accounts? What is the alternative to using them?
Contra accounts provide disaggregated information concerning the net amount of an asset, liability, or shareholders' equity item. For example, the account Property, Plant, and Equipment Net of Accumulated Depreciation does not indicate separately the acquisition cost of fixed assets and the portion of that acquisition cost written off as depreciation since acquisition. If the firm used a contra account, it would have such information.
The alternative to using contra accounts is to debit or credit directly the principal account involved (for example, Property, Plant, and Equipment). This alternative procedure, however, does not permit computation of disaggregated information about the net balance in the
account. Note that the use of contra accounts does not affect the total of assets, or liabilities, or shareholders' equity, but only the balances in various accounts that comprise the totals for these items.
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