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What Is The Difference Between An Adjunct Account and A Contra Account

An adjunct account records a valuation adjustment to an asset or liability that increases its recorded value, while a contra account records an adjustment that decreases the recorded value. The document illustrates this using bonds payable issued at a discount, where Discount on Bonds Payable is a contra account reducing the carrying value of the bonds, and bonds issued at a premium, where Premium on Bonds Payable is an adjunct account increasing the carrying value. Contra accounts always have debit balances, while adjunct accounts have credit balances consistent with the normal balance of the liability or asset accounts they relate to.

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305 views1 page

What Is The Difference Between An Adjunct Account and A Contra Account

An adjunct account records a valuation adjustment to an asset or liability that increases its recorded value, while a contra account records an adjustment that decreases the recorded value. The document illustrates this using bonds payable issued at a discount, where Discount on Bonds Payable is a contra account reducing the carrying value of the bonds, and bonds issued at a premium, where Premium on Bonds Payable is an adjunct account increasing the carrying value. Contra accounts always have debit balances, while adjunct accounts have credit balances consistent with the normal balance of the liability or asset accounts they relate to.

Uploaded by

Darlene Sarcino
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is the difference between an adjunct account and a contra account?

Let's illustrate adjunct and contra accounts with bonds payable. If a corporation issues $100,000 of its
bonds payable for a price of 97, it will be issuing the bonds at a discount of 3%. Its journal entry will
include a debit to Cash for $97,000; a credit to Bonds Payable for $100,000; and a debit to Discount on
Bonds Payable for $3,000. Discount on Bonds Payable is a contra account because it is a liability account
with a debit amount. The carrying value of the bonds will begin at $97,000 since the $100,000 in Bonds
Payable is offset by the $3,000 debit in Discount on Bonds Payable.

If a corporation issues $300,000 of bonds at a price of 102, it will be issuing the bonds at a premium of
2%. The journal entry will include a debit to Cash for $306,000; a credit to Bonds Payable for $300,000;
and a credit to Premium on Bonds Payable for $6,000. Since a credit balance is the normal balance for a
liability account, the account Premium on Bonds Payable cannot be referred to as a contra account.
Here is where the term adjunct account is used. Immediately after the bonds are issued, the bonds will
have a carrying value of $306,000 ($300,000 PLUS $6,000).

Some people might use the term adjunct accounts for both the Discount on Bonds Payable and for the
Premium on Bonds Payable. Others might use the term valuation accounts.

Other examples of contra accounts include Allowance for Doubtful Accounts, Accumulated Depreciation,
Discount on Notes Payable, Bond Issue Costs, Discount on Notes Receivable, LIFO Reserve, and certain
investment accounts.

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