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?

Solutions

Expert Solution

Solution -

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.

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.

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 1 year ago

Next > < Previous

Related Solutions

Aging of Receivables; estimating allowance for doubtful accounts Aging of receivables; estimating allowance for doubtful accounts...

Aging of Receivables; estimating allowance for doubtful accounts Aging of receivables; estimating allowance for doubtful accounts Fishy Fish company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Fishy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2015: A B C D E F G H 1 Not past Due Days Past Due 2 3 Customer Balance...

Cash 5,633,555 Accounts Receivable 190,000 Allowance for Doubtful Accounts 13,300 Merchandise Inventory ...

Cash 5,633,555 Accounts Receivable 190,000 Allowance for Doubtful Accounts 13,300 Merchandise Inventory 1,454,919 Parts inventory 437,900 Prepaid insurance 20,667 Supplies 39,520 Short term Investments, FV-NI 390,000 Assets held for sale, fair value 190,000 Investments, FV-OCI 845,000 Building 2,200,000 Accumulated Depreciation: Building 1,540,000 Land 1,845,000 Vehicles 252,000 Accumulated Depreciation: Vehicles 138,600 Equipment 2,640,000 Accumulated Depreciation: Equipment 1,188,000 Bank loan 654,714 Accounts payable ...

What is the difference between Accounts Receivable and the Allowance for Doubtful Accounts and when the...

What is the difference between Accounts Receivable and the Allowance for Doubtful Accounts and when the relationship can be considered reasonable

Explain how allowance for doubtful accounts could have a debit balance? Explain in detail.

The use of the allowance for doubtful accounts approach: a. should not be used if the...

The use of the allowance for doubtful accounts approach: a. should not be used if the customers are highly concentrated. b. increases the allowance for doubtful accounts when an account is written off. c. results in a matching of uncollectible accounts expense with the related sales that led to the expense. d. does not recognize an expense when the allowance is set up

Accounts Debits Credits cash $41,150 Account Receivable 4,806 Allowance for Doubtful Accounts 58 Inventory 2,670...

Accounts Debits Credits cash $41,150 Account Receivable 4,806 Allowance for Doubtful Accounts 58 Inventory 2,670 Prepaid Insurance 2,200 Land 20,000 Accounts Payable 1,500 Interest Payable 90 Payroll Taxes Payable 113 Wages Payable 817 Mortgage Payable 18,000 Owners investment 50,000 Retained Earnings - Sales 11,680 Repair revenue 20 Cost of goods sold 3,504 Advertising 200 Bad debt expense 58 Bank charges 50 Insurance expense 200 Payroll taxes 603 Rent 2,240 Supplies 150 Wages 4,357 Interest...

Cash $156,500 Accounts Recieveable 116,650 Allowance for Doubtful Accounts $51,250 Supplies 2,950 Prepaid Insurance 1,700 Building...

Cash $156,500 Accounts Recieveable 116,650 Allowance for Doubtful Accounts $51,250 Supplies 2,950 Prepaid Insurance 1,700 Building 260,000 Equipment 125,000 Land 111,500 Accumulated Depreciation 167,000 Investment in Bonds held to Maturity 24,000 Accounts Payable 5,650 Current Maturity of Note Payable 3,000 Note Payable 170,000 Unearned Revenue 12,000 Interest Payable 1,500 Salaries Payable 1,950 Common stock 49,100 Retained earnings 100,000 Service Revenue 488,700 Advertising Expense 6,000 Depreciation Expense 55,600 Insurance Expense 15,800 Interest Expense 1,800 Rent Expense 6,700 Salaries Expense 155,000 Supplies...

Panamerican Foods has Accounts Receivable of $230,000 and an Allowance for Doubtful Accounts of $13,000. If...

Panamerican Foods has Accounts Receivable of $230,000 and an Allowance for Doubtful Accounts of $13,000. If it writes-off a customer account balance of $1,300, what is the amount of its net accounts receivable? Multiple Choice $217,000 None of the other answers are correct. $215,700 $228,700 $230,000

ABC Company reported accounts receivable of $225,000 and an allowance for doubtful accounts with a $28,000...

ABC Company reported accounts receivable of $225,000 and an allowance for doubtful accounts with a $28,000 credit balance on January 1, 2017. ABC Company records bad debt expense using the net credit sales method. The following information was available for ABC Company for the years 2017 and 2018: 2017 2018 Cash collections from customers ? 275,870 Recoveries 3,600 6,760 Net realizable value at December 31 127,180 154,240 Accounts receivable turnover ratio 2.4 1.80 Sales revenue 468,000 ? % of sales...

On December 31, 2021, when its Allowance for Doubtful Accounts

On December 31, 2021, when its Allowance for Doubtful Accounts had a debit balance of $1,371, Tamarisk, Inc. estimates that 8% of its accounts receivable balance of $77,800 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. On May 11, 2022, Tamarisk, Inc. determined that B. Jared's account was uncollectible and wrote off $1,135. On June 12, 2022, Jared paid the amount previously written off. Prepare the journal entries on December 31, 2021, May 11, 2022,...

Subjects