What is a contra-asset account?

• A. An account that offsets asset accounts and has a debit balance
• B. An account that offsets asset accounts and has a zero balance
• C. An account that offsets asset accounts and has a credit balance
• D. An account that offsets asset accounts and increases asset balances

Answer: (C)

A contra-asset account is designed to offset or reduce the related asset accounts on the balance sheet. Its normal balance is the opposite of the asset’s normal balance, so since assets typically carry a debit balance, a contra-asset carries a credit balance. This structure lets a business show the net value of an asset by subtracting the contra-asset from the asset.

Common examples include accumulated depreciation (offsetting property, plant, and equipment) and allowance for doubtful accounts (offsetting accounts receivable). These accounts accumulate reductions over time, reflecting wear, obsolescence, or expected credit losses.

Because the contra-asset has a credit balance, it reduces the asset’s total on the balance sheet, producing net book value. It is not a zero balance and it does not increase asset balances; instead, it decreases them.