The Practice of Reporting the Net Realizable Value of Receivables

question 35

Multiple Choice

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

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

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Definitions:

Face Value

The nominal value or dollar value printed on a bond, note, or other financial instrument, representing the amount due at maturity.

Unamortized Discount

An unamortized discount refers to the portion of a bond's initial discount that has not yet been amortized or gradually written off over the life of the bond.

Redeemed

Usually refers to the repurchase or paying off of a debt or equity security at its original value or at a predetermined value before it matures.

Effective Interest Rate Method

The effective interest rate method is a technique for calculating the actual interest rate for a financial product over its life, considering compounding.