when accounting for assets the difference between the asset s account balance and the contra account balance is referred to as the book value there are two major methods of determining what should be booked into a contra account 
the allowance method of accounting allows a company to estimate what amount is reasonable to book into the contra account the percentage of sales method assumes that the company cannot collect payment for a fixed percentage of goods or services that it has sold both methods result in an adjustment to book value for example a company has 40 000 worth of accounts receivable at september month end it estimates 10 of its accounts receivable will be uncollectible and proceeds to create a credit entry of 10 x 40 000 4 000 in the contra account allowance for doubtful accounts a debit will be made to the bad debt expense for 4 000 to balance the journal entry although the accounts receivable is not due in september the company still has to report credit losses of 4 000 as bad debts expense in its income statement for the month if accounts receivable is 40 000 and allowance for doubtful accounts is 4 000 the net book value reported on the balance sheet will be 36 000 those who are struggling with recording contra accounts may benefit from utilizing some of the best accounting software currently available the difference between an asset s account balance and the contra account balance is known as the book value example of a contra accounta major example of a contra account is an allowance for doubtful accounts this contra asset reduces the balance of gross accounts receivable by an estimate of how many receivables will go uncollected notice on amazon s balance sheet that the balance of accounts receivable is noted as being a net amount amazon sheds more light on that net balance in the notes to the financial statements the balance of the contra asset is composed of the estimate mentioned below 