Under the allowance method of accounting for uncollectible accounts, how is net accounts receivable reported on the balance sheet?

• A. Accounts receivable less allowance for doubtful accounts
• B. Only the gross accounts receivable is reported
• C. Accounts receivable plus allowance for doubtful accounts
• D. Only the allowance for doubtful accounts is reported

Answer: (A)

Verified step by step guidance

1. Understand the concept of net accounts receivable: Net accounts receivable represents the amount of accounts receivable that a company expects to collect after accounting for potential uncollectible accounts.
2. Learn about the allowance method: Under the allowance method, companies estimate the amount of uncollectible accounts and record it as an allowance for doubtful accounts, which is a contra-asset account.
3. Identify the formula for net accounts receivable: Net accounts receivable is calculated as \( \text{Accounts Receivable} - \text{Allowance for Doubtful Accounts} \). This formula reflects the expected collectible amount.
4. Recognize how net accounts receivable is reported: On the balance sheet, net accounts receivable is presented as a single line item, showing the gross accounts receivable reduced by the allowance for doubtful accounts.
5. Understand why other options are incorrect: The gross accounts receivable alone does not account for uncollectible accounts, adding the allowance would inflate the receivable amount, and reporting only the allowance would omit the receivable balance entirely.