How does a company determine the net realizable value of accounts receivable?

Question

Quizplus · Accepted Answer

The net realizable value of accounts receivable is calculated by subtracting the allowance for uncollectible accounts (aka the allowance for doubtful accounts) from the total accounts receivable balance. This is because the allowance represents an estimate of how much of the receivables are unlikely to be collected, and therefore should not be included in the company's assets. Option A and C are incorrect because they add in either the allowance or bad debt expense, which are both already factored into the calculation. Option D is incorrect because it subtracts off the bad debt expense, which is an expense account and does not affect the balance of accounts receivable.

How Does a Company Determine the Net Realizable Value of Accounts