Question

The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the effect of stating accounts receivable at?

1) original cost.
2) net realizable value.
3) market value.
4) lower of cost or market.

Answer 1

Accounts receivable net of the allowance for doubtful accounts is stated at net realizable value on the balance sheet, reflecting the estimated amount expected to be collected and providing a realistic view of the organization's assets.

Step-by-step explanation:

The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the effect of stating accounts receivable at net realizable value. This method shows the estimated amount that is expected to be collected from customers, thus providing a more accurate financial position.

The allowance for doubtful accounts is an estimate of the accounts receivable that the company does not expect to collect. Therefore, presenting accounts receivable at net realizable value rather than original cost takes into account the reality that some amounts owed may not be collected, ensuring the balance sheet reflects a more realistic view of the organization’s assets.