Question

Allowance for Doubtful Accounts is a(n) _______asset account because it has a credit balance instead of the normal debit balance seen in asset accounts.

Answer 1

Allowance for Doubtful Accounts is a contra-asset account used to offset accounts receivable on a T-account, ensuring that assets equate to liabilities plus net worth for accurate financial reporting.

Step-by-step explanation:

Allowance for Doubtful Accounts is a contra-asset account because it has a credit balance instead of the normal debit balance seen in asset accounts. In accounting, a T-account helps visualize the relationship between assets and liabilities. The left side of the T-account represents assets, while the right side represents liabilities and net worth. Allowance for Doubtful Accounts is listed on the left side but has a credit balance, offsetting the assets such as accounts receivable. This allowance reduces the total accounts receivable to an amount that is more likely to be collected, thus providing a more accurate picture of future cash flows and helping to maintain a balance in the T-account format where assets equal liabilities plus net worth.