The practice of reporting the net realizable value of receivables in the financial statements is commonly called:
A)the cash flow method of accounting for uncollectible accounts.
B)the allowance method of accounting for uncollectible accounts.
C)the direct write-off method of accounting for uncollectible accounts.
D)the accrual method of accounting for uncollectible accounts.

Question

Quizplus · Accepted Answer

The reporting of net realizable value of receivables is a common practice in the allowance method of accounting for uncollectible accounts. This method involves estimating the amount of uncollectible accounts and creating an allowance account to reduce the reported value of accounts receivable to their expected net realizable value. This method is based on the accrual accounting principle and provides a more accurate representation of the actual value of the receivables.

The Practice of Reporting the Net Realizable Value of Receivables