Accounts receivable are shown on the balance sheet at their net realizable value.
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RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment? Show
Entry field with correct answer Bad Debts Expense 4,000
Bad Debts Expense 3,200 Allowance for Doubtful Accounts 4,000 Bad Debts Expense 3,200 $12,000 (Because the estimate is based on a percentage of receivables, the $800 balance in the Allowance accounts must be considered. The ending balance required in the allowance account is 7.5% times $160,000, or $12,000. Since there is already a balance of $5,000 in the allowance account, the difference of $7,000 should be added, resulting in a balance of $12,000). During 2017, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2017, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017? Entry field with correct answer $32,000 (After the write-offs are recorded, Allowance for Doubtful Accounts will have a debit balance of $12,000 ($18,000 credit beginning balance combined with a $30,000 debit for the write-offs). The desired balance, using the percentage of receivables basis, is a credit balance of $20,000 ($200,000 × 10%). In order to have an ending balance of $20,000, a credit entry of $32,000 must be made to Allowance for Doubtful Accounts. Thus, the amount of the adjusting entry must be $32,000) Ryan Leaf Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end and the total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a credit balance of $200 before adjustment? Entry field with correct answer Bad Debts Expense 1,800 Allowance for Doubtful Accounts 1,800 Bad Debts
Expense 1,600 Bad Debts Expense 1,600 On May 2, Wainwright Company receives a $3,000, 4-month, 10% note from Fulton Company as a settlement of its accounts receivable. What entry will Wainwright Company make when it receives the note on May 2? Entry field with correct answer Notes Receivable 3,000 Notes Receivable 3,100 Notes Receivable 3,000 Notes Receivable 3,100 Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. What is the entry to be made by Schleis Co. when the note is collected, assuming no interest has previously been accrued? Entry field with correct answer Cash 10,300 Cash 10,300 Cash 10,000 Accounts Receivable 10,300 Which one of the following is the correct presentation of Accounts Receivable and its contra account on the balance sheet? Entry field with correct answer Accounts Receivable $642,000 Accounts
Receivable $642,000 Accounts Receivable $642,000 Accounts Receivable $642,000 The concept of "net realizable value" crops up in two major categories of business bookkeeping: inventories and accounts receivable. Both are classified as current assets, meaning they are assets that a company expects to convert into cash within the next year This takes place by selling items out of its inventory to credit-based customers, and by collecting money owed by its customers. Net realizable value, commonly abbreviated NRV, comes into the picture because, under generally accepted accounting principles, businesses must report their inventories at the "lower of cost or market" and their accounts receivable "net of allowance for doubtful accounts." These rules acknowledge the reality that an asset sometimes isn't worth as much as it appears on paper. Calculating Net Realizable Value for InventoriesYou can calculate the NRV for inventory by following a few steps:
Adjusting Inventory ValueOn a company's balance sheet, inventory is typically listed "at cost," meaning the value reported is whatever it cost the company to acquire the inventory. If the net realizable value of an item is lower than its cost, however, then the item's balance-sheet value must be "written down" to NRV. This is called writing down to the lower of cost or market. The company must report the amount of the write-down as an expense. Calculating Net Realizable Value for Accounts ReceivableTo calculate the NRV of accounts receivable, there are three steps you must take:
Adjusting Accounts Receivable ValueOn a company's balance sheet, accounts receivable is typically reported as "accounts receivable, net." That means accounts receivable minus the value of the allowance for doubtful or uncollectible accounts – in other words, net realizable value. Companies rely on past experience to estimate an average percentage of their A/R that is uncollectible. They usually do this with the help of an "aging analysis." The basic principle is that the longer a receivable is past due, the more likely it is to go uncollected. Accounts Receivable ExampleSay a company knows that it typically fails to collect on 2 percent of current accounts, 4 percent of accounts zero to 30 days overdue, 6 percent of those 30-60 days overdue and 10 percent of those 60 or more days overdue. It can then apply those percentages to its outstanding accounts to make sure it is maintaining a proper allowance. When a company determines that a particular debt cannot be collected, it reduces both A/R and the doubtful-accounts allowance by the amount of the bad debt. As a result, the net realizable value remains the same. Eventually, the company will have to "replenish" the allowance. When it does so, it reports an expense for the amount added to the allowance. Is accounts receivable net realizable value?Net realizable value (NRV) is the value for which an asset can be sold, minus the estimated costs of selling or discarding the asset. The NRV is commonly used in the estimation of the value of ending inventory or accounts receivable.
Why are accounts receivable reported at net realizable value?So why is this? According to US GAAP, the company's accounts receivable balance must be stated at “net realizable value”. In basic terms, this just means that the accounts receivable balance presented in the company's financial statements must be equal to the amount of cash they expect to collect from customers.
Which of the following statements is true about net realizable value of accounts receivable?Answer and Explanation: Accounts receivable are reported at the net realizable value on the balance sheet.
How is realizable value of receivables on the balance sheet achieved?Cash realizable value is the cash remaining after the uncollectable amount has been subtracted from an account receivable. This net amount can be found by combining the receivable balance and the allowance for doubtful accounts on a company's balance sheet.
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