Question
The following account balances were extracted from the ledger's natural balance of Crestwood Manufacturing as at 30 June 2025: Cash: $35,000 Accounts Receivable: $40,000 Allowance for Doubtful Accounts: $2,500 Inventory: $62,000 Lan
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — offsetting and presentation
A contra account carries the opposite normal balance to the account it reduces and is presented alongside it, not merged into it. The gross amount and the contra both stay on the books so the reader can see the carrying amount and how it was arrived at.
Common mistakes
- Writing the reduction directly against the asset and losing the gross figure.
- Reporting a contra account on the wrong side of the statement, or as a liability rather than a deduction from its asset.
- Treating accumulated depreciation as an expense — it is a cumulative balance, while depreciation expense is the period charge.
Further readingStraight-line depreciation and accumulated depreciation