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Allowance uncollectible is a contra-asset account and is used because when a sale is on credit there is a possibly that you will not collect on all your credit sales. Because of this uncertainy a company has to use an allowance for doubtful accounts to show what the company expects to receive on their accounts receivable. A contra account is used to offset another account and in this case the account offsets Accounts Receivable, which is a current asset. |
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