A contra liability account is a liability account where the balance will be either a debit balance or a zero balance. Since a debit balance in a liability account is contrary to the normal or expected credit balance, the account is referred to as a contra liability account.
The credit balance in the liability account Bonds Payable minus the debit balance in the contra liability account Discount on Bonds Payable is the carrying value or book value of the bonds. The credit balance in Notes Payable minus the debit balance in Discount on Notes Payable is the carrying value or book value of the notes payable.
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