Multiple Choice
Under the allowance method, what is the effect on net accounts receivable when an uncollectible account is written off?
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7. Receivables and Investments
Net Accounts Receivable: Allowance for Doubtful Accounts
Multiple Choice
In the balance sheet, accounts receivable are normally reported at the:
A
Gross amount due from customers (before any allowance for doubtful accounts)
B
Amount expected to be collected after adding estimated future finance charges
C
Net realizable value (accounts receivable minus the allowance for doubtful accounts)
D
Face value plus the allowance for doubtful accounts
Verified step by step guidance1
Understand that accounts receivable represent amounts owed to the company by customers from credit sales.
Recognize that not all accounts receivable will be collected in full due to potential customer defaults, so an allowance for doubtful accounts is estimated.
Know that the balance sheet reports accounts receivable at the net realizable value, which is the gross amount of receivables minus the allowance for doubtful accounts.
Recall the formula for net realizable value: \(\text{Net Realizable Value} = \text{Accounts Receivable (Gross)} - \text{Allowance for Doubtful Accounts}\).
Conclude that the correct presentation on the balance sheet is the amount expected to be collected, i.e., the net realizable value.
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