Equipment charged to employees is a contra account on the income statement.
True
False
The correct answer and explanation is:
The correct answer is False.
An equipment charged to employees is not a contra account on the income statement. Instead, it is typically classified as an asset or an expense depending on the accounting method and context. To clarify, a contra account is an account used in accounting to offset the balance of a related account. These accounts usually have a balance opposite to that of the account it is linked to. For example, “Accumulated Depreciation” is a contra asset account that offsets the value of the “Equipment” account on the balance sheet.
Equipment charged to employees refers to the situation where a company loans or rents equipment to its employees. The accounting treatment for this transaction depends on whether the company expects the employees to return the equipment or if they are purchasing it through installment payments. If the equipment is sold or rented to employees, the transaction could be recorded as a sale or rental expense, and the revenue would be recognized accordingly. If the employees are simply borrowing the equipment, the company may record this transaction as a temporary asset or a liability, but it would not appear on the income statement directly as a contra account.
Contra accounts are typically not related to employee transactions in this way. Instead, the income statement reflects the company’s revenues, expenses, gains, and losses, and any employee-related charges (such as salaries or reimbursements for equipment) would be categorized under those respective accounts. So, labeling “equipment charged to employees” as a contra account on the income statement is inaccurate.