Question

Banning Company uses the allowance method to account for uncollectible receivables. At the beginning of the​ year, Allowance for Bad Debts had a credit balance of $ 1 comma 400. During the year Banning wrote off uncollectible receivables of $ 2 comma 400. Banning recorded Bad Debts Expense of $ 3 comma 500. Banning's ​year-end balance in Allowance for Bad Debts is $ 2 comma 500. Banning's ending balance of Accounts Receivable is $ 20 comma 600. Compute the net realizable value of Accounts Receivable at​ year-end.

Answer 1

Answer:

The net realizable value of Accounts Receivable at year end is simply $18,100 ($20,600 - $2,500).

Explanation:

When there was a writeoff, the Company would have debited the allowance account to credit accounts receivable to the tune of $2,400. Also, the additional bad debt expense of $3,500 recorded would have been a debit to bad debt expense and credit to the allowance account. These are all events that transpired during the year. Balance in the allowance account is therefore $1,400 - $2,400 + $3,000 = $2,500.

Note that the ending balance of accounts receivable of $20,600 was only given in the question, which means that when the writeoff happened, the accounts receivable would have been reduced during the year. To arrive at the net realizable value, we do not need to consider the writeoff anymore, just simply back out the allowance for doubtful accounts balance from the accounts receivable.