Contra Account
Definition
A contra account is an account that offsets another account. Accumulated Depreciation is a contra asset because it reduces the Equipment account.
Example
Equipment is recorded at $12,000. Accumulated Depreciation is $4,800. The contra account reduces the asset to its book value of $7,200 on the Balance Sheet.
Why It Matters
Contra accounts let the books show both the original cost and the reduction, which gives more useful information than just showing the net amount.