What type of account is the allowance for doubtful accounts?

• A. Asset
• B. Contra-asset
• C. Revenue
• D. Expense

Answer: (B)

An allowance for doubtful accounts is a contra-asset account because it offsets accounts receivable on the balance sheet. Its normal balance is a credit, which is opposite to the debit balance of a regular asset. It represents estimated uncollectible amounts and lowers the net realizable value of receivables (for example, if accounts receivable is 100,000 and the allowance is 5,000, the net receivables shown are 95,000).

When a specific receivable is written off, you would debit the allowance and credit accounts receivable, leaving total assets unchanged but reducing the gross receivables by that amount. This type of account is not an asset in itself, nor is it revenue or an expense; it serves as a valuation adjustment to the asset.