Allowance for Doubtful Debts is ........ negative asset1income2expense3negative income

Break Down the Problem

1. Identify what "Allowance for Doubtful Debts" represents in accounting.
2. Determine the classification of the allowance among the given options.

Relevant Concepts

3. The "Allowance for Doubtful Debts" is a contra account used to estimate the portion of accounts receivable that may not be collectible.
4. It reduces the total accounts receivable on the balance sheet but does not represent an asset itself.

Analysis and Detail

5. Given its nature and purpose, the allowance serves to match expected future loss against income. Thus, it is classified as an expense on the income statement, specifically as part of bad debt expense.

Verify and Summarize

6. Since the allowance is an estimation of future losses, it is treated as an expense rather than an asset. Therefore, among the options provided, the most accurate description is that it is an expense.

Final Answer

The correct answer is 2. expense.