Offset account definition
/What is an 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. For balance sheet presentation purposes, these two accounts may be merged into a single line item.
Examples of Offset Accounts
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).
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Offset Accounts in Banking
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.
Terms Similar to Offset Account
An offset account is also known as a contra account.