In this lesson, Nick Palazzolo, CPA, breaks down the intricacies of valuing accounts receivable by examining the concept of net realizable value—one that frequently appears on the exam. He elucidates the process of accounting for the difference between the gross amount of receivables and the actual amount expected to be received, factoring in customer payment behavior and potential defaults. Nick illustrates how net realizable value is calculated and displayed on the balance sheet, drawing parallels between the allowance for doubtful accounts and accumulated depreciation for property, plant, and equipment (PP&E). Through detailed explanations and visual examples, he demonstrates how these contra accounts are treated and the importance of estimating and reporting the net amount expected to be collected from customers.
Lesson: Valuing Accounts Receivable
In this lesson, Nick Palazzolo, CPA, breaks down the intricacies of valuing accounts receivable by examining the concept of net realizable value—one that frequently appears on the exam. He elucidates the process of accounting for the difference between the gross amount of receivables and the actual amount expected to be received, factoring in customer payment behavior and potential defaults. Nick illustrates how net realizable value is calculated and displayed on the balance sheet, drawing parallels between the allowance for doubtful accounts and accumulated depreciation for property, plant, and equipment (PP&E). Through detailed explanations and visual examples, he demonstrates how these contra accounts are treated and the importance of estimating and reporting the net amount expected to be collected from customers.
Updated: Oct. 20, 2021 Create an account