Which of the following is a contra-asset account?

• A. Accounts Receivable
• B. Inventory
• C. Cash
• D. Allowance for Doubtful Accounts

Answer: (D)

A contra-asset account carries the opposite balance of its related asset and reduces that asset on the balance sheet. The Allowance for Doubtful Accounts is paired with Accounts Receivable to reflect the portion that is not expected to be collected, so it is recorded as a credit and lowers the net amount of accounts receivable. For example, if Accounts Receivable is 100,000 and the allowance is 5,000, net accounts receivable is 95,000. The other options are ordinary asset accounts and do not carry the opposite, offsetting balance that reduces an asset: Accounts Receivable, Inventory, and Cash all appear on the balance sheet at their gross amounts.