What is a Contra Equity Account?

A contra equity account is a stockholders' equity account with a negative balance. This means that the account has a net debit balance. This account reduces the total amount of equity held by a business.

Examples of Contra Equity Accounts

There are only a few examples of contra equity accounts. They are as follows:

Treasury stock. This account reflects the amount paid by a business to buy back shares from investors). If no shares have ever been bought back (a common occurrence), then the balance in this account is zero, and it will not appear on the balance sheet.
Owner's drawing account. This account shows the amount of funds paid out to an owner. Since this is a common occurrence in a smaller business, many of these entities report a balance in this account.
Retained earnings appropriations. This account is used to set aside retained earnings for specific purposes, which indirectly reduces the equity available for dividend payments.