Answer:
The allowance means the sum permissible as per certain rules and is a contra asset. They are kept for doubtful accounts. It is a contra asset is never considered as the “other asset”. It cannot also be accepted as a counterweight for total current assets as it has nothing to do with the current asset, and it decreases the cash realizable value of the account receivable. The cash realizable value is account receivable minus the uncollectable amount. And hence, the allowance for doubtful accounts decreases the cash realizable amount, as it is deducted from the account receivable. It is deducted from the account receivable and is meant for bad debt. The management estimates the amount receivable as the allowance, and that will not be paid by the customer. Hence, the correct option is D.
Explanation:
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