The Practice of Reporting the Net Realizable Value of Receivables

question 43

Multiple Choice

The practice of reporting the net realizable value of receivables in the financial statements is commonly called the:

• A) cash flow method of accounting for uncollectible accounts.
• B) allowance method of accounting for uncollectible accounts.
• C) direct write-off method of accounting for uncollectible accounts.
• D) accrual method of accounting for uncollectible accounts.

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Definitions:

Present Value Factor

A factor used in calculating the present value of a future cash flow, discounting its value to reflect time and risk.

Internal Rate of Return Method

A capital budgeting technique used to evaluate the profitability of investments or projects, determining the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Present Value Concepts

Financial principles that determine the current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Cash Payback Period

The time it takes for a project or investment to generate enough cash to recover the initial investment outlay.