Question

Accounts Receivable has a balance of $32,000​, and the Allowance for Bad Debts has a credit balance of $3,100. The allowance method is used. What is the net realizable value of Accounts Receivable before and after a $2,200 account receivable is written​ off?

Answer 1

The net realizable value of Accounts Receivable before the write-off is $28,900. After writing off a $2,200 account, the net realizable value remains the same at $28,900 because both Accounts Receivable and the Allowance for Bad Debts are reduced by the same amount.

Step-by-step explanation:

The net realizable value of Accounts Receivable is calculated as the Accounts Receivable balance minus the Allowance for Bad Debts. Before the write-off, the net realizable value is $32,000 (Accounts Receivable) - $3,100 (Allowance for Bad Debts) which equals $28,900. After a $2,200 account receivable is written off, the Allowance for Bad Debts will reduce to $900 ($3,100 - $2,200), and the Accounts Receivable will also reduce to $29,800 ($32,000 - $2,200). Therefore, the new net realizable value of Accounts Receivable will still be at $28,900.