What type of balance does a contra-asset account have?

A contra-asset account is used to reduce the value of an associated asset account and, therefore, has a credit balance. This is distinct from most asset accounts, which typically carry a debit balance. For example, accumulated depreciation is a common contra-asset account that accumulates the total depreciation expense on fixed assets over time. This means that instead of increasing the asset's value, it reduces the net asset value on the balance sheet.

The credit balance in a contra-asset account plays a critical role in presenting the financial condition of the entity, as it offsets the related asset to show a more accurate value of what the company owns. This relationship ensures that financial statements reflect the true economic value of assets after accounting for any associated depreciation or impairment.