How to calculate net realizable value of accounts receivable?
Understand the Problem
The question is asking for guidance on calculating the net realizable value (NRV) of accounts receivable. This involves determining the expected cash inflows from accounts receivable after accounting for estimated uncollectible amounts, which can include allowances for doubtful accounts. The approach would typically involve taking the total accounts receivable and subtracting the estimated uncollectible accounts.
Answer
Subtract the allowance for doubtful accounts from the full receivable balance.
The net realizable value (NRV) of accounts receivable is calculated by subtracting the allowance for doubtful accounts from the full receivable balance.
Answer for screen readers
The net realizable value (NRV) of accounts receivable is calculated by subtracting the allowance for doubtful accounts from the full receivable balance.
More Information
NRV is used to value assets in accounting, ensuring that they are not overstated and reflects a conservative estimate of what will actually be collected.
Tips
Avoid underestimating the allowance for doubtful accounts, as it can overstate the net realizable value.
Sources
- How to Calculate Net Realizable Value (NRV) - Wall Street Prep - wallstreetprep.com
- The web page with info on - Example Source - investopedia.com
- Net Realizable Value | Uses & Formula - Lesson - Study.com - study.com
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