Accounting and Finance Foundations

Unit 7

Accounting and Finance Foundations Unit 7: Financial Statements 564

Financial Statements

Chapter 18

2.3.9Lesson 18.3

Student Guide

The Balance Sheet (cont’d)

The net realizable value of accounts receivable is the balance of the Accounts Receivable account adjusted

for receivables that may be uncollectible and for sales returns and allowances. The write-off of the ac-

counts receivable does not change the net realizable value of accounts receivable because the Allowance

for Doubtful Accounts is a contra account for accounts receivable. Therefore, the net effect is zero on the

balance sheet.

Suppose that after recording the write-off of the accounts receivable, Customer S decides that he wants

to pay off the amount that he owes. First, you would reverse the entry of the write-off. Then, you would

record the cash received as a normal entry as revenues received, as if the receivable had never been

written off.