How do you calculate net realizable value of accounts receivable?
Understand the Problem
The question is asking for the method to calculate the net realizable value of accounts receivable, which typically involves determining the expected cash inflows from receivables, accounting for any estimated uncollectible amounts.
Answer
Total receivable balance less allowance for doubtful accounts.
To calculate the net realizable value (NRV) of accounts receivable, subtract the allowance for doubtful accounts from the total accounts receivable balance.
Answer for screen readers
To calculate the net realizable value (NRV) of accounts receivable, subtract the allowance for doubtful accounts from the total accounts receivable balance.
More Information
Net realizable value provides a realistic estimate of the value of receivables by accounting for the possibility of uncollectible debts.
Tips
A common mistake is not accurately estimating the allowance for doubtful accounts, which can lead to an incorrect NRV.
Sources
- Net Realizable Value of Accounts Receivable - Investopedia - investopedia.com
- What Is Net Realizable Value? How to Calculate and Examples - NetSuite - netsuite.com
- Net Realizable Value - Definition, How to Calculate, Example - Corporate Finance Institute - corporatefinanceinstitute.com
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