The balance sheet category receivables represents claims to cash.Accounts receivable typically constitutes the largest dollar value of receivables.An estimated allowance for doubtful accounts should be deducted from the gross amount of accounts receivable to arrive at the estimated amount collectible.Plant assets are reported on the balance sheet at their historical cost less any accumulated depreciation.The allowance for doubtful accounts and accumulated depreciation are both termed contra-asset accounts.Which of the following statements regarding these two contra-asset accounts is true?
A) Both result in the valuation of their related asset account at net realizable value.
B) Accumulated depreciation deducted from the related asset account shows the unallocated portion of the historical cost of the related asset.
C) Accumulated depreciation deducted from the related asset account shows the net realizable value of the related asset.
D) Accumulated depreciation deducted from the related asset account shows the current replacement cost of the related asset.

Question

Quizplus · Accepted Answer

Accumulated depreciation represents the total amount of depreciation expense that has been recorded against a fixed asset over its useful life. When deducted from the related asset account (e.g., buildings, machinery), it shows the unallocated (or remaining) portion of the historical cost of the asset, not its net realizable value or current replacement cost. The allowance for doubtful accounts, on the other hand, is deducted from accounts receivable to show the estimated collectible amount, but this does not directly relate to the historical cost concept as with plant assets and accumulated depreciation.

The Balance Sheet Category Receivables Represents Claims to Cash