Question

Allowance for doubtful accounts is a contra asset account.

a) True
b) False

Answer 1

The correct answer is a) True. Allowance for doubtful accounts is a contra asset account used to reduce the reported amount of accounts receivable to reflect an estimate of the amount that may become uncollectible.

Step-by-step explanation:

The correct answer is a) True. Allowance for doubtful accounts is a contra asset account. It is used to reduce the reported amount of accounts receivable to reflect an estimate of the amount that may become uncollectible. As an example, if a company has $10,000 in accounts receivable but estimates that $1,000 may not be collectible, it would record a contra asset account called Allowance for Doubtful Accounts with a balance of $1,000. This would result in a net accounts receivable balance of $9,000 ($10,000 - $1,000).