Definition of Adjunct Account
An adjunct account is a general ledger account that adds to the carrying (or book value) amount of another general ledger account. An adjunct account might be referred to as a valuation account.
Example of Adjunct Account
Assume that a corporation issued bonds with a maturity value of $2,000,000 but investors paid the corporation $2,100,000 because of the bonds’ favorable interest rate. The corporation will record the transaction with a credit to the liability account Bonds Payable for $2,000,000, a credit to the related adjunct liability account Premium on Bonds Payable for $100,000, and a debit to Cash for $2,100,000. At the time the bonds are issued, bonds payable have a carrying amount or book value of $2,100,000. (The corporation will amortize the Premium on Bonds Payable to Interest Expense over the life of the bonds.)
Definition of Contra Account
A contra account is a general ledger account that subtracts from the carrying (or book value) amount of another general ledger account. For example, Accumulated Depreciation is a contra asset account that is associated with asset accounts for buildings, equipment, vehicles, etc. The asset accounts have debit balances, but the related account Accumulated Depreciation will have a credit balance.
Examples of a Contra Account
Assume that a company’s Equipment has a debit balance of $450,000. The related account Accumulated Depreciation of Equipment has a credit balance of $190,000. Therefore, the carrying amount or book value of the equipment is $260,000.
Assume a company has sold goods on credit for $900,000. As a result, its Sales account was credited for $900,000 and Accounts Receivable was debited for $900,000. Several customers were disappointed in the goods they received and the company gave them a sales allowance of $10,000. In order to account for such allowances, the company will debit the contra sales account Sales Allowances for $10,000 (instead of debiting Sales) and credits Accounts Receivable. The company will likely combine the credit balance of $900,000 in the Sales account with the debit balance of $10,000 in the Sales Allowances account and report net sales of $890,000.
