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True/False. The Allowance for Bad Debts is a contra account to Accounts Receivable.

True/False.

The Allowance for Bad Debts is a contra account to Accounts Receivable.

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Answer #1

This statement is true.

The allowance for bad debts is a contra account to account receivable. Allowance for bad debts is a contra asset account which is associated with account receivables. Allowance for bad debts reflects estimated account that won't be received from debtors. Whenever there is an estimation that any debtors is unable to repay back the debts, the organization has to record for the same. In such cases bad debts expenses is debited and allowance for bad debts is credited. Allowance for bad debts can be reflected in the balance sheet of final statement in two way either credit balance on liabilities side or reduce from account receivables and show net account receivables.

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