The net figure for accounts receivable after deducting the allowance for doubtful debts account:
A) represents the expected cash to be collected.
B) is a contra account.
C) understates the realisable value of accounts receivable.
D) overstates the realisable value of accounts receivable.

Question

Quizplus · Accepted Answer

The net figure for accounts receivable after deducting the allowance for doubtful debts account represents the expected cash to be collected. This means that it reflects the portion of accounts receivable that the company expects to collect from customers in the future. Therefore, choice A is correct. Choice B is incorrect because the allowance for doubtful debts account is a contra asset account, which has the opposite balance to the accounts receivable account. Choice C is incorrect because the allowance for doubtful debts account is deducted from the accounts receivable, which means that the net figure already takes into account the expected loss due to bad debts. Conversely, choice D is also incorrect because the net figure for accounts receivable already takes into account the expected loss due to bad debts; hence, it does not overstate the realisable value of accounts receivable.

The Net Figure for Accounts Receivable After Deducting the Allowance