Net realizable value of accounts receivable is defined as what?

• A. The gross amount of accounts receivable.
• B. The amount of cash that has been collected from customers this period.
• C. The estimated amount that will be collected from customers, i.e., the amount of AR minus the allowance for doubtful accounts.
• D. The total revenue to be recognized from accounts receivable collections.

Answer: (C)

Net realizable value represents the cash the company expects to collect from its accounts receivable after accounting for uncollectible amounts. It is the gross amount of receivables minus the allowance for doubtful accounts, reflecting what is actually achievable in cash. This concept matters because not every amount billed will be collected, so the NRV provides a realistic measure of assets that will convert to cash. For example, if there are $100 in receivables and the allowance for doubtful accounts is $6, the net realizable value is $94. The other options miss this distinction: the gross receivables show the total owed before write-offs, cash collected this period is actual receipts not the remaining collectible balance, and revenue to be recognized from collections isn’t the asset’s value.