Indicate whether each of the following statements is true or false.________ a) Most companies expect to receive the full amount of their receivables.________ b) The estimated amount of uncollectible accounts is called the net realizable value.________ c) The direct write-off method does not require the computation of the net realizable value of accounts receivable.________ d) The practice of reporting the net realizable value of receivables is the result of using the allowance method.________ e) The materiality principle requires the computation of net realizable value for a company's liabilities.

Question

What will be an ideal response?

Answer 1

a) F b) F c) T d) T e) F

a) This is false. Most companies that extend credit to customers expect that some of those customers will fail to pay their obligations.
b) This is false. The estimated amount of uncollectible accounts is called uncollectible accounts expense (for a particular accounting period) or allowance for doubtful accounts (for the accounts receivable balance).
c) This is true. Net realizable value is not computed when the direct write-off method is used.
d) This is true. Net realizable value is the amount reported that is net of an allowance for uncollectible amounts.
e) This is false. The materiality concept requires computation of net realizable value of a company's receivables (rather than its liabilities).