Question

Company uses the allowance method to account for uncollectible receivables. At the beginning of the​ year, Allowance for Bad Debts had a credit balance of $ 1 comma 400. During the year Back wrote off uncollectible receivables of $ 2 comma 400. Back recorded Bad Debts Expense of $ 3 comma 000. Back's ​year-end balance in Allowance for Bad Debts is $ 2 comma 000. Back's ending balance of Accounts Receivable is $ 20 comma 900. Compute the net realizable value of Accounts Receivable at​ year-end.

Answer 1

Answer: $18,900

Step-by-step explanation:

Seeing as this company uses the Allowance method for accounting for Uncollectible Receivables, only 2 figures here matter, the ending Account balance on the Receivables account and the Allowance for bad debts account.

The formula for the Net Realizable Value for Accounts Receivable is,

= Account Receivable Ending Balance - Allowance for Doubtful Accounts Ending Balance

= 20,900 - 2,000

= $18,900

The Net Realizable Value of Accounts Receivable at​ year-end is $18,900.

With the Allowance method, only the Allowance is deducted. Bad debts are then removed from the Allowance account. If the Allowance increases or decreases there is an entry in the Income Statement as well but thats unrelated to this.