Multiple Choice
What is the effect of writing off a specific account receivable under the direct write-off method?
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Accounts receivable are normally reported at the:
A
total amount owed by customers (gross amount)
B
amount expected to be collected (net realizable value)
C
amount after deducting estimated uncollectible accounts (allowance method)
D
historical cost of goods sold to customers
Verified step by step guidance1
Understand the concept of accounts receivable: Accounts receivable represent amounts owed to a company by its customers for goods or services provided on credit.
Learn about the net realizable value: This is the amount expected to be collected from accounts receivable after deducting estimated uncollectible accounts. It reflects the realistic value of receivables.
Explore the allowance method: Under this method, companies estimate the portion of accounts receivable that may not be collected and record it as an allowance for doubtful accounts. This ensures that the financial statements reflect the net realizable value.
Distinguish between gross amount and net realizable value: The gross amount is the total owed by customers, while the net realizable value accounts for potential uncollectible amounts, providing a more accurate financial picture.
Apply the reporting principle: Accounts receivable are reported at their net realizable value on the balance sheet, ensuring compliance with accounting standards and providing a true representation of expected cash inflows.
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