True Or False | A Contra Asset Is An Account That When Increased, Decreases The Value Of A Related Asset On The Books.

Solution To The True And False Question

The answer is “True”.

Explanation:

Yes, it is true that a Contra Asset Account, such as Allowance for Doubtful Accounts, Accumulated Depreciation, Sales Returns & Allowances, Purchases Returns And Allowances, etc., when increased, then these types of accounts decrease the values of related Assets i.e., Accounts Receivable, Fixed Assets such as Furniture & Fixtures, Plant & Machinery, etc., in the Books of Accounts and on Balance Sheet.

For example, if we make more allowance for doubtful accounts i.e., from 3% to 5% on Accounts Receivable, then the more value of allowance for doubtful accounts are deducted from Accounts Receivable on Balance Sheet. After deducting the value, the accounts receivable is recorded at Net Realizable Value on asset side of balance sheet.