Which account type is a contra-asset?

Which account type is a contra-asset?

• A. Allowance for Doubtful Accounts
• B. Accounts Receivable
• C. Inventory
• D. Cash

Answer: (A)

A contra-asset reduces the value of another asset on the balance sheet and carries the opposite (credit) balance to the asset’s normal debit balance. The Allowance for Doubtful Accounts fits this role because it offsets Accounts Receivable to reflect the portion that is not expected to be collected. Net Accounts Receivable is calculated as Accounts Receivable minus the Allowance for Doubtful Accounts, representing the amount actually expected to be received. For example, if Accounts Receivable is 100,000 and the allowance is 5,000, net Accounts Receivable would be 95,000. The other options are standard asset accounts and do not reduce another asset, so they are not contra-assets.

A contra-asset reduces the value of another asset on the balance sheet and carries the opposite (credit) balance to the asset’s normal debit balance. The Allowance for Doubtful Accounts fits this role because it offsets Accounts Receivable to reflect the portion that is not expected to be collected. Net Accounts Receivable is calculated as Accounts Receivable minus the Allowance for Doubtful Accounts, representing the amount actually expected to be received.

For example, if Accounts Receivable is 100,000 and the allowance is 5,000, net Accounts Receivable would be 95,000. The other options are standard asset accounts and do not reduce another asset, so they are not contra-assets.