It is true that allowance for doubtful accounts is a contra asset account; its balance is added to accounts receivable.
What is contra asset account?
- Because it lowers the value of an asset—in this case, the accounts receivable—the allowance for dubious accounts is referred to as a "contra asset."
- The allowance, also known as a bad debt reserve, is management's projection of the amount of accounts receivable that customers will not pay.
- A balance on an account that differs from the typical balance.
- Accumulated Depreciation is a good illustration of a contra asset account because its credit balance is the opposite of the debit amount for an asset account.
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