Is provision for doubtful debts an expense, liability, asset, or what?

Understand the Problem

The question is asking about the categorization of 'provision for doubtful debts' in accounting terms, specifically whether it is classified as an expense, liability, or asset.

More Information

Provision for doubtful debts is labeled as a contra asset because it reduces the balance of an asset account, specifically the accounts receivable. The impact of this provision is reflected on the balance sheet where it is subtracted from the total accounts receivable to account for potential bad debts.

Tips

A common mistake is thinking the provision is a liability rather than a contra asset, affecting how it is presented on financial statements.

Sources

• Allowance for Doubtful Accounts and Bad Debt Expenses - finance.cornell.edu
• Is the provision for doubtful debts an operating expense? - accountingcoach.com
• Provision doubtful debts account is a ______.Personal AccountReal ... - toppr.com