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The balance of accounts receivable is $75,000 as of end of the period. Prior to adjustment,...

The balance of accounts receivable is $75,000 as of end of the period. Prior to adjustment, the allowance for uncollectible accounts has a credit balance of $7,200. Income statement approach is used to estimate expected uncollectible accounts. Net credit sales for the year were $280,000 and cash sales were $168,000. Historical data indicates that approximately 3% of net credit sales are uncollectible. What is net realizable value of receivables as of end of the period?

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Answer #1

Income statement approach means expected uncollectile accounts will be prepaid on credit sales and ignore the existing balance if Any.

Credit Sales = $280,000

Expected uncollectible provision = 3%

Allowance for uncollectible accounts = 3% of $280,000

= $8,400

Net realisable value of receivable = balance of accounts receivable is $75,000 as of end of the period - Allowance for uncollectible accounts ($8,400 current + $7,200 old)

= $75,000 - $15,600

=$59,400

$59,400 is net realizable value of receivables as of end of the period

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