- Glossary
- Adjunct Account
Adjunct Account
In financial reporting, an adjunct account is one that raises the liabilities account's book value. An adjunct account is a valuation account from which credit balances are added to another account. The idea of a contra account, which reduces the value of a liability account by a debit entry, can be compared with the idea of an adjunct account.
The term "adjunct account" is also used to refer to a valuation account.
How An Adjunct Account Works
A liability account's (link: https://fincent.com/glossary/book-value text: book value) is raised by entries in an adjunct account. Adjunct accounts are designed to offer more depth to accounting data and improve financial reporting's overall transparency.
Example Of An Adjunct Account
The Unamortized Premium on Bonds Payable account, often known as the Bond Premium account or simply the Unamortized Premium account, is an auxiliary account that is created when a corporation issues bonds because its credit balance is added to the amount in the Bonds Payable account (to determine the book value of the bonds). When combined, the bond liability and unamortized premium indicate the issue's true liabilities.
A corporation would issue bonds at a 3% discount rate, for instance, if it issued $100,000 of bonds receivable for $97,000. The corporation will post a debit of $97,000 to Cash, a credit of $100,000 to Bonds Payable, and a debit of $3,000 to Discount on Bonds Payable. Because it is a liability account with a debit balance, the Discount on Bonds Payable account is a contra account.
Adjunct Account vs. Contra Account
Contra account and adjunct account could be compared. A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification For instance, a debit to a liability account would occur from a discount on bonds payable in a contra account.
When the two accounts are netted together, a contra account is utilized to lower the value of a connected account. Alternatively, a contra account simply cancels out the balance of a related account. It enables a business to disclose both the initial amount and a reduction, enabling disclosure of the net amount as well.
Key Takeaways
- An adjunct account is a financial reporting account that raises the liabilities account's book value.
- A valuation account from which credit amounts are added to another account is known as an adjunct account.
- A contra account, which reduces the value of a liability account by a debit entry, contrasts with the idea of an adjunct account.
