An account that reduces the gross amount of other related accounts to arrive at a net balance. It is paired with another account to the effect of “offsetting” it- that is, cancelling out any corresponding gross amounts on both sides of a financial statement. At the back-end, this involves the cancellation of an accounting entry with an equal but opposite entry. Offsetting in accounting denotes netting. With offsetting, an entity presents it assets and liabilities on the balance sheet (statement of financial position) on a net basis.
The most common types of offset accounts include accumulated depreciation (paired with fixed assets), reserve for obsolete inventory (paired with inventory), and drawings account (paired with equity). For instance, a fixed asset account with a debit balance has a related offset account that carries a credit balance from accumulated depreciation (i.e., annual charges for depreciation).
Offset accounts are also referred to as contra accounts.
