Contra Account(redirected from Debits and credits)
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(from Italian conto corrente, “current account”), a single account of a client with a bank through which all business operations between the client and the bank are performed. The account reflects both debit and credit operations; the debit payments include those made on instructions of the client and those made from the credit line opened by the bank to the client. Credit operations include deposits made by the client and payments received from third persons for the client’s account. The contra account is an asset-liability account. Its balance may show the indebtedness of the client to the bank or a free surplus of the client’s funds in the bank.
In opening a contra account in capitalist countries, the banks establish a credit limit from within which the client may draw. The agreement setting up the contra account also provides for a period of verification and acknowledgment of the balance by the client (usually quarterly or once at the end of each year) and other conditions of the operations of the account. The contra account has been most widely used during the era of imperialism. Providing a technically convenient form of accounting, it contributes to the establishment of control by large banks over the financial and economic activity of enterprises, thus acting as one of the forms of fusion of bank and industrial capital and contributing to the formation of finance capital. The contra account is especially common in the Federal Republic of Germany, France, and Belgium. In Great Britain and the USA, there is a kind of contra account that provides for an overdraft; the client is allowed to receive credit over and above the amount of funds deposited in his account.
In the USSR the contra account was used in 1930–31. In 1931 it was replaced by clearing accounts and loan accounts. Clearing accounts are opened by the banks to enterprises and organizations run on the basis of economic accountability for custody of their funds and for clearing operations; through loan accounts, the banks advance the credits granted by them to the enterprises and organizations.
M. G. POLIAKOV