A contra liability account is a liability account where the balance is expected to be a debit balance. Since a debit balance in a liability account is contrary to the normal credit balance, the account is referred to as a contra liability account.
The most common contra liability accounts are Discount on Bonds Payable, Bond Issue Costs, Debt Issue Costs, and Discount on Notes Payable. The debit balances in these accounts are amortized or allocated to Interest Expense over the life of the bonds or notes.
The credit balance in the liability account Bonds Payable minus the debit balances in the contra liability accounts Discount on Bonds Payable and Bond Issue Costs is the carrying value or book value of the bonds. The credit balance in Notes Payable minus the debit balances in Discount on Notes Payable and Debt Issue Costs is the carrying value or book value of the notes payable.