CONTRA LIABILITY Meaning and
Definition
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A contra liability is a type of accounting term that refers to a specific liability that offsets an existing liability. It represents the reduction or decrement of a liability recorded on a balance sheet. In simpler terms, it is a liability account that is deducted from or reduces another liability account.
Contra liabilities are used to provide additional information and clarity on a company's financial position. They are typically presented as separate line items on a balance sheet to distinguish them from regular liabilities. These accounts are represented with a negative balance, and their purpose is to offset certain obligations or potential claims against the company.
One common example of a contra liability is a bond sinking fund. This fund is set up to accumulate money over time, typically through periodic deposits, in order to eventually retire a company's long-term debt obligations. The balance in the bond sinking fund represents a contra liability, as it reduces the long-term debt liability reported on the company's balance sheet.
Overall, contra liabilities are important in providing a more accurate representation of a company's liabilities and financial health. They help to differentiate certain obligations or funds specifically earmarked for certain future liabilities. By highlighting these specific liabilities, contra liabilities offer a more comprehensive view of a company's financial obligations to its stakeholders.
Common Misspellings for CONTRA LIABILITY
- xontra liability
- vontra liability
- fontra liability
- dontra liability
- cintra liability
- ckntra liability
- clntra liability
- cpntra liability
- c0ntra liability
- c9ntra liability
- cobtra liability
- comtra liability
- cojtra liability
- cohtra liability
- conrra liability
- confra liability
- congra liability
- conyra liability
- con6ra liability
- con5ra liability
Etymology of CONTRA LIABILITY
The term "contra liability" does not have a specific etymology as it is a financial and accounting term derived from the Latin language. However, breaking down the term can provide some insight:
1. "Contra" is a Latin preposition meaning "against" or "opposite to".
2. "Liability" is derived from the Latin word "liabilitas", which means "obligation" or "responsibility".
Therefore, the term "contra liability" refers to an entry on a balance sheet that offsets or contradicts a liability account. It indicates a reduction in a liability rather than an increase.
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