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.