Contra-Revenue Marketing Programs

If these programs reduce your top-line revenue as a brand owner while increasing complexity and costs, why use them? If decision makers really thought these expenditures were unnecessary to maintain sales, marketers would eliminate them—but why not just lower the up-front price and avoid contra-revenue programs and their resulting administrative efforts? By keeping the original dollar amount intact in the original account and reducing the figure in a separate account, the financial information is more transparent for financial reporting purposes. For example, if a piece of heavy machinery is purchased for $10,000, that $10,000 figure is maintained on the general ledger even as the asset’s depreciation is recorded separately. A contra account is an entry on the general ledger with a balance contrary to the normal balance for that categorization (i.e. asset, liability, or equity).

The allowance method of accounting enables a company to determine the amount reasonable to be recorded in the contra account. Contra accounts are shown in the financial statements below the paired accounts, although sometimes the balances of the two accounts are merged to a net amount for presentation purposes. Understanding the reasons for a contra-revenue channel marketing program enables channel managers to be more strategic. They can combine the right programs and adjust the investment amounts in each program to better align channel payouts to the brand owner’s growth strategies. Instead of being against (contra) revenue, the ultimate outcome is long-term results and strong, consistent sales performance from a loyal channel.

What are the different types of contra accounts?

Contra accounts are used to help a company report the original amount of a transaction as well as reductions that may have happened. They serve an invaluable function in financial reporting that enhances transparency in accounting books. The amount in the accumulated depreciation account is deducted from the assets of a company, such as buildings, vehicles and equipment. This can help anyone viewing the financial information to find the historical cost of the asset. The accumulated depreciation amount shows how much depreciation expense has been charged against an asset. Accumulated depreciation decreases the value of an asset, bringing it more in line with its market value.

By accounting for returns, allowances, and discounts, StyleMart can track its actual revenue more effectively and make more informed decisions about its pricing, inventory management, and customer relationship strategies. bookkeeping for startups The amount for estimated uncollectible accounts is a bad debt operating expense. The allowance for doubtful accounts is the contra account that reduces the accounts receivable to an estimated realizable amount.

Contra Account in Business Accounting

Transactions made to contra accounts are presented on a company’s financial statements under the related account. Contra accounts are important because they allow a company to follow the matching principle by recording an expense initially in the contra asset account. Business owners should understand the functions of contra accounts and their importance to maintaining accurate financial records. Key examples of contra asset accounts include allowance for doubtful accounts and accumulated depreciation. Allowance for doubtful accounts reduce accounts receivable, while accumulated deprecation is used to reduce the value of a fixed asset. In the sales revenue section of an income statement, the sales returns and allowances account is subtracted from sales because these accounts have the opposite effect on net income.

Most companies pay their sales representatives a salary plus a bonus or commissions. The answer is based on the future, because smart brand owners want to motivate and push their sales representatives to do more. Brand owners want to influence behavior by paying sales reps more beyond their standard paychecks to do X, Y and Z. Similarly, companies use these “back-end” contra-revenue programs to shape channel behavior and motivate partners to do A, B and C—all of which companies believe will result in the sale of more products and services. The difference between an asset’s account balance and the contra account balance is known as the book value. In this way, an accumulated amortisation account offsets a related asset account (which is recorded as a debit).

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The net accounts receivable will more accurately report your assets on the balance sheet, and the estimated uncollectible expense will recognize the reduction to income in the same period as the sale. Other contra account examples can be Allowance for https://www.apzomedia.com/bookkeeping-startups-perfect-way-boost-financial-planning/ Doubtful Accounts (also contra asset account), Bond discounts, which represent contra liability account, i.e. decrease bond payable account. The first time a contra asset account is recorded in a journal entry, it is to be deducted from the expense.