Question
W hich of the following types of account best describes
a “Provision for doubtful assets” account ?Solution
A contra-asset account is an account with a credit balance that reduces the balance of an asset account. In this case, the provision for doubtful debts reduces the debit balance of the accounts receivable account. On the balance sheet, the provision for doubtful debts is typically shown as a deduction from the gross accounts receivable, resulting in the net realizable value of the receivables. Please note, while Bad debts is a nominal account, provision for bad and doubtful debts is a contra- account as it acts as an offset to the asset's (accounts receivables, here) original value. Other example of contra asset are accumulated depreciation.
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