A liability account which is expected to carry a debit balance. It decreases other liabilities on the balance sheet by offsetting a credit to another with which it is paired (as liabilities typically carry a credit balance). In other words, the contra liability account aims to adjust the book value of a liability.

Examples of contra liability accounts include discount on bonds payable/ notes payable. The upfront discount on bonds payable captures the difference between the amount of cash an issuing entity receives on a bond issued and the value of the bond at maturity. This contra liability account (the discount) reduces the carrying value of the respective bond. The discount reduces the recognized amount of the bond/ note to reflect the amount of the discount extended by the issuer.