Question

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $93,000 of revenue on account during 2016. During 2016, Hancock collected $73,200 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, 2016 balance sheet would be ________?

Answer 1

Answer:

The answer is $18,870 .

Explanation:

In this question, the net realizable value of account receivables will be determined by the total credit sales during the year, cash collection from account receivable; the estimated uncollectible amount from credit sales.

We have Net Realizable value of account receivables = Total credit sales during the year 2016 - total cash collection - Estimated uncollectible amount(*) = $93,000 - $73,200 - $93,000 x 1%(*) = $18,870.

(*) Estimated uncollectible amount is $930 and is recorded in Allowance for doubtful debt account which is a contra account for Account Receivables. Thus, when deciding net realizable value of account receivables, the effect of this contra account should be taken into consideration.