Which of the following formulas correctly calculates Net Accounts Receivable on the balance sheet?

• A. Accounts Receivable minus Accounts Payable
• B. Accounts Receivable minus Allowance for Doubtful Accounts
• C. Accounts Receivable plus Accounts Payable
• D. Accounts Receivable plus Allowance for Doubtful Accounts

Answer: (B)

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 amounts (Allowance for Doubtful Accounts).
2. Identify the components involved: Accounts Receivable is the total amount owed to the company by customers, while Allowance for Doubtful Accounts is an estimate of the portion of accounts receivable that may not be collected.
3. Recognize the formula: To calculate Net Accounts Receivable, subtract the Allowance for Doubtful Accounts from the total Accounts Receivable. This adjustment ensures the balance sheet reflects a realistic expectation of collectible receivables.
4. Eliminate incorrect options: Accounts Payable is a liability and unrelated to the calculation of Net Accounts Receivable. Adding Accounts Payable or Allowance for Doubtful Accounts to Accounts Receivable does not align with the definition of Net Accounts Receivable.
5. Apply the correct formula: Net Accounts Receivable = Accounts Receivable − Allowance for Doubtful Accounts. This formula ensures the balance sheet accurately represents the expected collectible amount.