The Normal Balance and Type of Account for the Allowance

question 104

Multiple Choice

The normal balance and type of account for the Allowance for Doubtful Accounts is

• A)debit, contra-asset.
• B)credit, asset.
• C)credit, revenue account.
• D)credit, contra-asset.

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Definitions:

Income Statement Approach

A method of calculating adjustments to income, focusing on items that affect the income statement directly.

Balance Sheet Approach

A method of evaluating or preparing financial statements focusing on the balances of assets, liabilities, and equity at a specific point in time.

Estimating Bad Debts

The process of forecasting the amount of credit sales that are not expected to be collected, to account for potential losses.

Allowance Method

A method of accounting for bad debts that involves estimating and setting aside an allowance for doubtful accounts.