Final answer:
A contra-owner's equity account has a debit balance, recording decreases in owner's equity such as withdrawals or losses, opposite to the typical credit balance of an owner's equity account.
Step-by-step explanation:
A contra-owner's equity account typically has a debit balance. This is because contra accounts are meant to have the opposite balance to the accounts they are associated with.
In the context of owner's equity, which usually has a credit balance, a contra-equity account records a decrease in owner's equity due to withdrawals or losses.
For example:
- Asset value minus the amount owed results in equity, like in the case of Fred whose house value is $200,000 and owes $180,000, therefore, his equity is $20,000.
- Freda's house value is $250,000, and since she owes nothing to the bank, her entire equity amounts to $250,000.
- Finally, Frank has a house valued at $160,000 and owes $60,000, leaving him with an equity of $100,000.
The term conventional owner's equity refers to the total value of the house minus any liabilities such as bank loans, as illustrated in the examples provided above.