Question

True or False

1. The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

2. No question.

3. Credit card discounts are reported as operating expenses on an income statement.

4. Gross profit decreases when sales discounts increase.

Answer 1

1. The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.
TRUE.
Assets have normal debit balance, while Allowance account has a normal credit balance which is deducted from Accounts receivables, thereby decreasing Asset’s balance.
Hence, it’s a contra asset account.

2. No question.

3. Credit card discounts are reported as operating expenses on an income statement.
FALSE.
Credit Card discounts are deducted from total sales to calculate Net sales.

4. Gross profit decreases when sales discounts increase.
TRUE.
Increase in sales discount = decrease in Net Sales = decrease in Gross Profits.