Final answer:
The net realizable value of accounts receivable is the estimated amount of cash a company expects to receive from its receivables after subtracting estimated doubtful accounts.
Step-by-step explanation:
The net realizable value of accounts receivable is the amount of money a company expects to receive from its current accounts receivable, after considering the possibility of some accounts being unpaid. This value is calculated by estimating the total amount of accounts receivable that is actually expected to turn into cash, often by deducting an allowance for doubtful accounts from the total accounts receivable. This allowance represents the company’s estimate of the accounts receivable that may not be collected. The net realizable value is an important figure as it provides a more realistic view of the company’s potential income from receivables and is used for accounting purposes on the balance sheet.
Using the information from the reference provided, if a company's total accounts receivable is $1,000,000 and they estimate that $50,000 will be uncollectible, the net realizable value of accounts receivable would be $950,000.