A contra asset is a type of account used in double-entry accounting to reduce the balance of a related asset account in the general ledger. The natural balance of a contra asset account is the opposite of the associated account, meaning that if the associated account has a debit balance, the contra account will have a credit balance. Contra assets are useful to preserve the historical value in a main account while presenting a decrease or write-down in a separate contra account that nets to the current book value.

Contra assets are reported on the same financial statement as the associated account, typically appearing directly below it with a third line for the net amount. Accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean. Some examples of contra asset accounts include accumulated depreciation, allowance for doubtful accounts, and reserve for obsolete inventory.

Accumulated depreciation is a contra asset account used to record the amount of depreciation to date on a fixed asset. Allowance for doubtful accounts is a contra asset account used to offset accounts receivable and record the estimated amount of uncollectible accounts. Reserve for obsolete inventory is a contra asset account used to offset inventory and record the estimated amount of inventory that is no longer salable.

In summary, a contra asset is a negative asset account that offsets the associated asset account and reduces its balance. Contra assets are useful for preserving the historical value of an asset while presenting a decrease or write-down in a separate account. They are reported on the same financial statement as the associated account and are used to keep financial accounting records clean. Examples of contra asset accounts include accumulated depreciation, allowance for doubtful accounts, and reserve for obsolete inventory.