Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which of the following best describes an account that reduces a related account on a financial statement?

Asset account

Contra account

Revenue account

Liability account

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Verified step by step guidance

Understand the concept of a contra account: A contra account is an account that is used to reduce the balance of a related account on a financial statement. It is typically paired with an account of the same type (e.g., asset, liability, or equity) and has the opposite normal balance.

Identify examples of contra accounts: Common examples include accumulated depreciation (contra asset account), allowance for doubtful accounts (contra asset account), and sales returns and allowances (contra revenue account). These accounts are used to adjust the value of the related accounts.

Analyze the options provided: The options include asset account, contra account, revenue account, and liability account. Among these, only the contra account specifically serves the purpose of reducing a related account.

Clarify why other options are incorrect: Asset accounts represent resources owned by the company, revenue accounts track income earned, and liability accounts represent obligations. None of these inherently reduce a related account, unlike a contra account.

Conclude that the correct answer is 'Contra account': This is the account type that reduces the balance of a related account on a financial statement, as described in the problem.