[GNC] Accounting Question re Balance Sheet

[Michael or Penny Novack]

On 1/25/2022 2:14 PM, Adrien Monteleone wrote:

> If your needs aren't that complicated, there is nothing wrong with 
> contra-accounts however. Accountants use them fairly regularly. 

That's because accountants think in terms of debits and credits. All a 
"contra account" is is an account where the balance is not what would 
normally be expected for an account of that type. A credit balance where 
a debit balance would be expected or a debit balance where a credit 
balance would be expected.

Even if you don't intend to use a "contra account" you might end up with 
one. For example, not that long ago (here) was a time period where 
"overdraft protection" was available with checking accounts (for some 
customers) and that as a less temporary arrangement familiar to our 
fellow users say in the UK. In other words, your checking account would 
be an asset (under "current assets" and normally would have a debit 
balance. But what if you wrote checks for more than what was in the 
account? With an arrangement with the bank to allow "overdrafts" not to 
exceed some agreed limit instead of bouncing the check, the account 
would go to a credit balance. That amount would of course be a liability 
but you don't move the account in the CoA << but for the duration of the 
overdraft condition, it is a ":contra account" >>

With a little imagination you should be able to come up with scenarios 
where an account of type of income or expense temporarily has the "wrong 
type" balance and hence is "contra".

Michael D Novack