what is the concept of cash realizable value? explain the Allowance for Doubtful Accounts? explain the...

what is the concept of cash realizable value?

explain the Allowance for Doubtful Accounts?

explain the valuation of accounts receivable?

Expert Solution

Solution -

1.

The cash realizable value, or net realizable value, of a company’s accounts receivable is the amount the company expects to receive in cash as payment from customers. The net realizable value equals the dollar amount of accounts receivable minus the dollar amount of allowance for uncollectible accounts. Accounts receivable is the amount of money a company’s customers owe it for purchases made on credit. Allowance for uncollectible accounts is an account a company uses to estimate the dollar amount of its accounts receivable balance that will be uncollectible. You can calculate the cash realizable value of your accounts receivable to estimate how much money you will collect.

2.

The allowance for doubtful accounts is a balance sheet account that reduces the reported amount of accounts receivable. (A change to the balance in the allowance for doubtful accounts also affects bad debt expense on the income statement.) Providing an allowance for doubtful accounts presents a more realistic picture of how much of the accounts receivable will be turning to cash. After all, a company selling products (or services) on credit to thousands of customers will likely have a few customers who will not be able to pay the full amount they owe to the company.

3.

Definition

The term accounts receivable valuation describes the methods used to determine the value of accounts receivable appearing on the company's balance sheet. Typical adjustments to accounts receivable can include discounts, sales returns, and uncollectable accounts.

Explanation

Not all sales will result in money collected from customers. The matching principle requires companies to align revenues, an income statement item, with receivables, which appears on the balance sheet. When initially valuing accounts receivable, the company needs to consider discounts offered to customers and trade partners.

Rahul Sunny answered 2 years ago

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