Question

At the end of the current year, accounts receivable has a balance of $550,000; allowance for doubtful accounts has a credit balance of $5,500; and sales for the year total $2,500,000. an analysis of receivables estimates uncollectible receivables as $25,000. determine the net realizable value of accounts receivable after adjustment

Answer 1

The net realizable value of accounts receivable after adjustment is the amount that can surely be collected after considering the possible doubtful accounts. In this problem we have the balance of accounts receivable of $550,000 with the allowance for doubtful accounts of $5,500. The problem provided us with additional provision for allowance for doubtful accounts for $25,000. This provision will make the allowance for doubtful accounts to $30,500. In order to bet the net realizable value, we need to subtract the allowance for doubtful accounts to the balance of the accounts receivable. This will give us the amount of $519,500 as the net realizable amount of accounts receivable after adjustment.