Chapter 5 Obj 4

Question 1

What is “net realizable value”?

Answer 1

The amount of cash the company expects to collect; GAAP requires this for accounts receivable; not necessarily the same value as cash owed as some customers will fail to pay

Question 2

What is “uncollectible accounts”?

Answer 2

Another name for “Bad Debts” and is an expense for the company, not a reduction in revenue.

Question 3

How does the “direct write-off method” work regarding the “bad debt expense”?

Answer 3

When an account receivable is determined uncollectible accounts receivable is reduced and bad debt expense increased. Not often used because of the expense recognition principal requires expenses match the revenue and accounts are usually declared uncollectible in a different period of the revenue.