The allowance for uncollectible accounts is an example of a contra account, specifically, to the Accounts Receivable account.
In the general ledger, the contra account:
- reduces the main or related account's value
- preserves the main account's historical value
- nets the main or related account to its current book value.
- Examples of contra accounts are owner's drawings, accumulated depreciation, allowance for doubtful accounts, treasury stock, dividends, etc.
- The contra accounts usually have opposite balances to the main accounts. The contra account of an asset account has a credit balance while the contra account of a liability or equity account has a debit balance.
Thus, the Accounts Receivable's contra account is the Allowance for Uncollectible Accounts.
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