Banking Practice Exam

A contra-asset account is an account that reduces the total amount of a related asset account. It serves to offset the value of that asset on the balance sheet, providing a more accurate reflection of the company's financial situation. The loan and lease loss allowance is a prime example of this, as it represents an estimate of the amount that may not be collected from loans issued by the bank. By recording this allowance against the loans receivable, it helps in presenting a realistic view of the expected future cash flows from these assets.

In contrast, unearned income is a liability, as it represents money received in advance for services or products not yet delivered, and not a reduction of an asset. Buildings and equipment are typical asset accounts, and thus do not qualify as contra-asset accounts; rather, they are directly reported as assets on the balance sheet. Revenue bonds also represent a form of debt financing and thus do not relate to asset values in this context.