A company has the following: Trade accounts receivable: $500,000, Long-term notes receivable: $750,000, Allowance for doubtful accounts: $10,000. Which amount should this company report as net receivables under the current asset section of the balance sheet?

Rationale

$490,000 should be reported as net receivables under the current asset section of the balance sheet.

To determine the net receivables, the company must subtract the allowance for doubtful accounts from the trade accounts receivable. The calculation is $500,000 (trade accounts receivable) - $10,000 (allowance for doubtful accounts) = $490,000.

A ($490,000) CORRECT

This amount accurately represents the net receivables after accounting for the allowance for doubtful accounts. The formula used is: Trade accounts receivable ($500,000) minus Allowance for doubtful accounts ($10,000), resulting in a net receivable of $490,000.

B ($760,000) YOUR ANSWER

This figure incorrectly combines long-term notes receivable with trade accounts receivable. Net receivables should only include current assets, which are short-term accounts. Long-term notes receivable do not fit into the current asset category, hence this total is not relevant for net receivables.

C ($510,000) YOUR ANSWER

This amount mistakenly adds the allowance for doubtful accounts to the trade accounts receivable rather than subtracting it. To report net receivables correctly, the allowance must be deducted from the trade accounts receivable, not added, resulting in the incorrect total.

D ($750,000) YOUR ANSWER

This value reflects the total of long-term notes receivable and does not consider the current assets correctly. It fails to incorporate the trade accounts receivable or the allowance for doubtful accounts, which are necessary to calculate net receivables.

Conclusion

Net receivables represent the amount expected to be collected from customers after considering potential uncollectible accounts. In this case, the correct calculation results in $490,000, demonstrating the importance of accurately accounting for allowances when preparing financial statements. Only trade accounts receivable are relevant for this figure, reinforcing the necessity of separating current and long-term assets in balance sheet reporting.

A company has the following: Trade accounts receivable: $500,000, Long-term notes receivable: $750,000, Allowance for doubtful accounts: $10,000. Which amount should this company report as net receivables under the current asset section of the balance sheet?

$490,000 should be reported as net receivables under the current asset section of the balance sheet.

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