Question

The Miller Company earned $103,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $72,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.

Required:
What is the net realizable value of Miller's receivables at the end of Year 1?

Answer 1

the net realizable value of Miller's receivables at the end of Year 1 is $27,910

Step-by-step explanation:

The Net Realisable Value of Trade receivables is the amount the entity expects to receive from its Accounts Outstanding at end of the year.

This amount must be a faithful representation of the balance of Trade Receivables that exist at end of year after adjusting (1) Accounts Paid Up (2) Bad Debts and (3) Provision for Doubtful Debts.

Net Realisable Value of Trade receivables - Calculation

Revenue on Account $103,000

Less Cash Receipts from Accounts Outstanding ($72,000)

Less Provision for Doubtful Debts ( $103,000 × 3%) ($3,090)

Net Realisable Value of Trade receivables $27,910