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We use the Allowance for Uncollectible Accounts to store an “allowance” of money used in the case of customers not being able to pay us back for their purchases.
In business operations, there's going to be times customers pay for something on credit, but then aren't able to truly pay us at a later date.
In-turn, we must set aside an “allowance” for when this occurs to their customers. Here in-lies the value of Allowance for Uncollectible Accounts!
Us placing money into the Allowance for Uncollectible Accounts is us preparing to subtract money from Accounts Receivable (an asset) in the future! That's why it's a contra-asset... it's reducing the value of our total assets!
