Final answer:
The net realizable value of receivables decreases when a company recognizes uncollectible accounts expense. This is because NRV measures the true value of accounts receivable by considering debts that may not be collected, and recognizing these expenses indicates that some debts are indeed uncollectible.
Step-by-step explanation:
The net realizable value (NRV) of receivables decreases when a company recognizes uncollectible accounts expense. NRV is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. It aims to measure the true value of accounts receivable by accounting for debts that are unlikely to be collected.
Here are the options explained:
- Paying an account payable does not affect receivables, as it relates to the company's own debts.
- Recognizing uncollectible accounts expense directly impacts NRV, because it decreases the amount of receivables that are expected to be collected.
- Recognizing revenue on account generally increases receivables, not decreases NRV.
- Collecting an account receivable reduces the receivables balance but does not typically decrease NRV unless the collection is less than the receivable’s recorded amount.
Therefore, the correct answer is that the net realizable value of receivables decreases when a company recognizes uncollectible accounts expense.