What Is an Adjunct Account?
An adjunct account is an account in financial reporting that increases the book value of a liability account. An adjunct account is a valuation account from which credit balances are added to another account. The concept of an adjunct account can be contrasted with the concept of a contra account, which decreases the amount of a liability account through a debit entry.
- An adjunct account is an account in financial reporting that increases the book value of a liability account.
- An adjunct account is a valuation account from which credit balances are added to another account.
- The concept of an adjunct account can be contrasted with the concept of a contra account, which decreases the amount of a liability account through a debit entry.
How an Adjunct Account Works
An adjunct account consists of entries that increase the book value of a liability account. This is in contrast to a contra account, as a discount on bonds payable account would result in a debit to a liability account.
A contra account allows a company to report the original amount in addition to a reduction so that the net amount will also be reported. It is used in a general ledger. The net amount may also be referred to as the carrying amount or the net realizable amount.
For example, a contra account to accounts receivable is a contra asset account. A contra asset account could be called the allowance for doubtful accounts or bad debt reserve. Like an adjunct account, a contra account is presented on the same financial statement as its associated account.
Adjunct accounts are intended to provide additional detail to accounting figures and increase the overall transparency of financial reporting.
Example of an Adjunct Account
For example, if a company issues bonds, the unamortized premium on bonds payable account (sometimes called bond premium) is an adjunct account because its credit balance is added to the bonds payable account. The unamortized premium and the bond liability, when combined, represent the actual liability of the issuer.
For example, if a company issues $100,000 of its bonds payable for $97,000, it will be issuing the bonds at a discount rate of 3%. The company's entry will include a debit to Cash for $97,000, a credit to Bonds Payable for $100,000; and a debit to Discount on Bonds Payable for $3,000. The Discount on Bonds Payable account is a contra account because it is a liability account with a debit amount.
Some accountants might apply the term adjunct accounts to both the Discount on Bonds Payable and for the Premium on Bonds Payable while others might use the term valuation accounts instead.
In this case, the carrying value of the bonds will begin at $97,000, since the $100,000 in Bonds Payable is offset by the $3,000 debit in Discount on Bonds Payable.
Other types of contra accounts include Accumulated Depreciation, Discount on Notes Payable, Bond Issue Costs, Discount on Notes Receivable, LIFO Reserve, and certain investment accounts.