What is a contra account?
Definition of contra account
A contra account is one of the accounts in your business's general ledger. It's used as a "holding bay" for transactions that will come into your business accounts and go straight back out again.
Example of a contra account:
The most common example for using the contra account is if you receive a cheque that bounces.
You would put both the incoming sum for the original cheque, and the money going back out again when it bounces, into the contra account.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.