Final answer:
A contra liability account has a debit balance and is deducted from the related liability on a balance sheet. In T-accounts, which have assets on the left and liabilities on the right, contra liability accounts reduce the total amount of liabilities. An example of this in banking is adjustments to time deposits like certificates of deposit.
Step-by-step explanation:
An account with a debit balance that is deducted from the related liability on the balance sheet is known as a contra liability account. This type of account is used to decrease the total amount of a related liability. When you look at a T-account, which is a balance sheet with a two-column format resembling the letter 'T', you'll see assets listed on the left-hand side and liabilities on the right-hand side. The contra liability account would be listed on the liability side but would have a debit balance, indicating it reduces the total amount of liabilities.
For example, if a bank has a time deposit, such as a certificate of deposit, it represents both a liability to the bank and an asset to the depositor. If there are any discounts or premiums on these deposits, they would be recorded in a contra liability account to show the net liability associated with that time deposit.