What is the concept of net realizable value (NRV) for accounts receivable?

• A. NRV is the estimated collectible amount of receivables after allowances for doubtful accounts and expected returns
• B. NRV is the total amount of accounts receivable
• C. NRV is the gross amount of cash a company expects to collect
• D. NRV is the net income from sales discounted

Answer: (A)

Net realizable value for accounts receivable is the amount you expect to collect in cash, after subtracting allowances for doubtful accounts and expected returns. This reflects the realistic value of receivables on the balance sheet, recognizing that some customers may not pay and some sales may be returned.

The correct description states that NRV is the estimated collectible amount after considering doubtful accounts and expected returns, which matches how NRV is calculated: gross accounts receivable minus the allowance for doubtful accounts minus expected returns and allowances. The other options describe the gross receivables, the full cash that might be collected without adjustments, or net income from discounts, which are not the measurement concept used for NRV.