Definition
The financial accounting term cross references and contra items refers to an approach used to disclose information appearing on a company's financial statement. Cross references allow the reader to understand how assets are related to liabilities, while contra items are used to increase or decrease assets and liabilities.
Explanation
Cross references and contra items are one of several ways to communicate material information that is supplementary to the items appearing on the company's balance sheet. Cross references are used to communicate direct relationships between assets and liabilities. Contra accounts are used to reduce an asset, liability, or owner's equity line item. In addition to contra accounts, adjunct accounts are used to communicate an increase to an asset, liability, or owner's equity line item.
Cross references are similar to parenthetical explanations, since the relationship is oftentimes a concisely written message prominently displayed within the body of the financial statement. The most commonly used contra account is accumulated depreciation. Displaying explanations in this manner is thought to be advantageous when compared to other communication methods such as supporting schedules or notes that might accompany the statement.
Contra and adjunct accounts often appear immediately below the line item they're affecting. Such disclosures are deemed necessary if the information appearing on a statement is thought to be misleading without their inclusion.
Example
Contra Account
Company A's balance sheet indicates accounts receivable of $4,292,300 and the contra account, allowance for doubtful accounts, contains a balance of $425,300. The net receivables of Company A, as shown on the balance sheet would be:
Accounts Receivable | $4,292,300 |
Less: Allowance for Doubtful Accounts | $425,300 |
Net Accounts Receivable | $3,867,000 |
Cross Reference
Company A uses a financial institution that acts on their behalf when notes payable come due. Company A has created a cash account with this agent to fund a $100,000 promissory note coming due in less than 12 months. The cross references appearing on Company A's balance sheet would be:
Current Assets
Cash on deposit with agent for redemption of notes payable: see Current Liabilities | $100,000 |
Current Liabilities
Notes payable to be redeemed in less than 12 months: see Current Assets | $100,000 |
Related Terms
- The financial accounting term parenthetical explanation refers to an approach to disclosing information appearing in financial statements. Parenthetical explanations are needed on a company's balance sheet when additional precision or completeness is required.
Moneyzine EditorSeptember 20th, 2023 - The financial accounting term notes to financial statements refers to an approach to disclosing information. Notes allow the reader of the company's financial statements to understand the effect contingencies, contracts, and agreements have on the value of assets appearing on the company's balance sheet.Moneyzine EditorSeptember 20th, 2023
- The financial accounting term supporting schedules refers to an approach used to disclose information appearing on a company's financial statement. Supporting schedules will provide additional detail on the assets and liabilities of the company.Moneyzine EditorSeptember 21st, 2023
The accounting term financial statement refers to a series of documents that reflect the collection and summary of accounting data. Financial statements include the balance sheet, income statement, cash flow statement, and the statement of retained earnings.Moneyzine EditorJanuary 18th, 2024
