Multiple Choice
The cost of estimated accounts receivable that will not be collected is referred to as which type of expense?
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7. Receivables and Investments
Net Accounts Receivable: Allowance for Doubtful Accounts
Multiple Choice
Which of the following best describes 'Net Accounts Receivable' in the context of the Allowance for Doubtful Accounts?
A
The estimated amount of uncollectible accounts for the period.
B
The total amount of cash collected from customers during the period.
C
The total amount of accounts receivable less the allowance for doubtful accounts.
D
The sum of all outstanding customer invoices before any deductions.
Verified step by step guidance1
Step 1: Understand the concept of 'Net Accounts Receivable'. It represents the amount of accounts receivable that a company expects to collect after accounting for potential uncollectible accounts.
Step 2: Recognize the role of the 'Allowance for Doubtful Accounts'. This is a contra-asset account that reduces the total accounts receivable to reflect the estimated uncollectible portion.
Step 3: Calculate 'Net Accounts Receivable' using the formula: .
Step 4: Note that 'Net Accounts Receivable' is not the total amount of cash collected from customers during the period, nor is it the sum of all outstanding customer invoices before deductions. It specifically accounts for the estimated uncollectible portion.
Step 5: The correct description of 'Net Accounts Receivable' is: 'The total amount of accounts receivable less the allowance for doubtful accounts.' This reflects the realistic expectation of cash inflows from receivables.
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