How do I set up a contra account or control the natural balance of a GL account in Quickbooks Online?

You can also record contra revenue within the sales account, but this means that it will be buried within the total amount of revenue reported, so that management cannot easily determine the amount of contra revenue. If your company has minimal contra revenue activity, it is acceptable to record these transactions within the revenue account. The sales returns account contains either an allowance for returned goods, or the actual amount of revenue deduction attributable to returned goods. It is especially important to track sales returns separately and on a trend line, since this can provide important evidence of problems with a company’s products that are causing customers to return goods. An allowance for doubtful accounts is a contra asset account that is used to offset Accounts Receivable on the balance sheet. This account is used to estimate the amount of money that is not likely to be collected from customers.

By using contra revenue accounts, financial statement users can gain a more accurate and detailed understanding of a company’s revenue position, allowing for better financial analysis and decision-making. Contra revenue accounts help in presenting the net revenue, which is the revenue earned by the company after accounting for any returns, allowances, and discounts. Businesses leverage contra-revenue accounts to distinguish between net and gross revenue. While transactions may be recorded in one or more arrangements, the typical balance is a debit, contrasting with the usual credit balance in a standard sales account.

How do I set up a contra account or control the natural balance of a GL account in Quickbooks Online?

F45 went public in July 2021, and began trading on the New York Stock Exchange at $16.10 per share. The stock price plummeted in 2022, never fully recovered, and was delisted by the NYSE in August. It has been trading below $1 per share since the delisting, and was last valued at approximately 15 cents per share, valuing the company at $14.63 million—roughly what Beckham says he’s owed. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.

Contra equity reduces the total number of outstanding shares on the balance sheet. The key example of a contra equity account is Treasury stock, which represents the amount paid to buyback stock. This type of account could be called the allowance for doubtful accounts or a bad debt reserve. The balance in the allowance for doubtful accounts represents the dollar amount of the current accounts receivable balance that is expected to be uncollectible.

Do Contra Accounts Have Debit or Credit Balances?

This approach, known as the allowance method, helps in maintaining the integrity of the revenue figures and provides a more accurate representation of the expected net sales. Contra accounts are used to reduce the original account directly, keeping financial accounting records clean. The difference between an asset’s balance and the contra account asset balance is the book value. To illustrate the contra revenue account Sales Returns and Allowances, let’s assume that Company K sells $100,000 of merchandise on credit.

These deductions are a common part of doing business, especially if you are trying to retain customers by offering them discounts from the list prices of your goods and services. 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 noted below. First, it provides transparency in financial reporting by separating the reduction in revenue from regular sales and service transactions.

Why is Contra Revenue important?

For example, a contra accumulated depreciation account can offset a fixed asset. Keep reading to learn more about contra revenue accounts and what should go in them. Reporting net sales is generally considered a more transparent approach, as it provides stakeholders with a clearer view of the actual sales that contribute to a company’s profitability.

• This scrutiny helps to maintain the credibility of financial statements and provides assurance to stakeholders that the reported net sales are reliable.
• We can see how the $10,000 allowance for doubtful accounts offsets the $100,000 A/R account from our illustrative example above (i.e. the account decreases the carrying value of A/R).
• Again, the company’s management will see the original amount of sales, the sales discounts, and the resulting net sales.
• For example, if a piece of heavy machinery is purchased for $10,000, that $10,000 figure is maintained on the general ledger even as the asset’s depreciation is recorded separately.
• In this example, the contra revenue accounts (Sales Returns and Allowances and Sales Discounts) are used to provide a more accurate and detailed representation of the company’s revenue position.
• The stock price plummeted in 2022, never fully recovered, and was delisted by the NYSE in August.

QB itself isn’t set up to handle something like this on its own, so manual entries is the only way I know of to take care of it. I strongly suggest having a trained Accountant do this (or something in a similar vein) if you need it done for your business. However, they impact the net income, which in turn, affects the owner’s equity section of the balance sheet.

Consequently the net balance of the two accounts shows the net value of the sales after discounts. As mentioned, businesses use contra revenue accounts to understand net vs. gross revenue. The transactions are sometimes recorded in one or more accounts, but the balance is usually a debit. To determine the contra revenue, you simply deduct the gross sales from the net sales. Such contra accounts might include sales returns, sales allowances, and sales discounts. These accounts reflect any transactions that take revenue away from a company, therefore giving a more accurate picture of a company’s financial health.