What is Contra Expense Account - Meaning - Definition - Types & Examples

A Contra Expense Account is the reversal of relevant Expense Account on Income Statement. The most famous Examples are Purchase Returns, Purchase Allowance and Purchase Discount. These are deducted from Total Purchases or Gross Purchases.

1. Purchase Returns Contra Expense Account

Purchase Returns are the returning of goods by customers to suppliers due to defective goods or any other valid reasons it is an contra expense account, so it is deducted from total purchases on Income Statement / Statement of Profit And Loss Account.

2. Purchase Allowances Contra Expense Account

Purchases allowance is the retaining of goods by customer as the seller offers a lower price than standard price due to minor defective in goods i.e., paint quality of table is not so good as required by the customer but he retains due to lower price and accept this offer, etc. It is also deducted from Gross Purchases.

3. Purchase Discount Contra Expense Account

It is the deduction of standard price as the customer is the old customer or some offers given by sellers to customers. It is also due to prompt payment made by the buyer to seller before due date. It also reduces the amount of Gross Purchases.