Offset account

An offset account is an account that is paired with and offsets another account. The other account contains a gross balance and the offset account reduces this balance, resulting in a net balance. Examples of offset accounts are the allowance for bad debts (paired with the accounts receivable account) and the reserve for obsolete inventory (paired with the inventory account). An offset account is also known as a contra account.

The concept is also used in banking, where an offset account is a bank account that is paired with a borrower's loan when determining the amount of accrued interest on the loan. The cash balance in the bank account reduces the outstanding loan to a net loan balance, to which the loan interest rate is then applied.

Related Courses

Bookkeeper Education Bundle 
Bookkeeping Guidebook