How an Adjunct Account Works

The adjunct account is central to correlating an accurate financial report in any institution. It contains the entries that enhance the book value of a liability account, and it is meant to give extra details to accounting figures.

An adjunct account also helps to enhance the overall accountability of financial reports. When an adjunct account is used to determine a financial account, the result is always accurate. It helps the people in charge of the account get quick results on the calculations by implications.

With a valuation account from which the credit balance is joined with another account, you are able to get an understanding of the value of bonds. This makes for better evaluation.

Example of an Adjunct Account

If a company issues a bond, the unamortized premium (the net difference between the selling price and the actual bond value at its maturity) on the bonds payable account (referred to as a bond premium account) is an example of an adjunct account. This is because its credit balance is joined to the amount that is in the bonds payable account. You do this in order to know the book value of the bonds. When unamortized premium and the bond liability accounts are joined, they represent the exact liability of the issuer.

For instance, if a company gives $100,000 of its bonds payable for $97,000, it means that the company issues the bond based on a discount of 3%. You will base the company's entry on adding a debit to cash for $97,000, a credit to bonds payable for $100,000, with a debit to discount on bonds payable for $3,000.

The discount on the bonds payable account is referred to as a contra account, and this is because it is a liability account with a debit amount. In this instance, the carrying value of the bonds will start at $97,000, since the $100,000 in bonds payable is a compensating equivalent to the $3,000 debit in discount on bonds payable.

Adjunct Account vs. Contra Account

An adjunct account is a contrast to the contra account. A contra account is a general ledger account with a balance that contrasts with the normal balance for that account. For instance, in a contra account, a discount on bonds payable account results in a debit to a liability account.

Another thing that makes a contra account different from an adjunct account is that it reduces the value of a related account, and this happens when they are joined together. However, these two are reported on the same financial statement. If a debt is the main balance on record, the record on the contra account is a record in the account that is related.

A contra account is always used in a general ledger, but the net amount may also be a carrying amount. For instance, a contra account to a receivable account is the allowance for doubtful account or, worse still, bad debt reserve. An allowance for doubtful accounts must possess a credit balance since the account is a contra account. In this account, the balance is a representation of the dollar amount of the current accounts receivable balance which is expected not to be collectible.