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Net Realizable Value

Net Realizable Value

Net realizable value is the amount you actually you expect to receive from your accounts receivable.

Whenever a company extends credit, there are always going to be a few people that end up not paying. Based on prior experience, the company estimates how many of the accounts are never going to be collected. This is called uncollectible accounts expense or bad debt expense. These account titles are synonyms; the two account titles mean exactly the same thing. If my customers owe me $40,000, but I believe $1000 will never be collected, I subtract 1000 from 40,000 to get $39,000. This is my net realizable value. If I am planning to spend some money, I would only count on spending $39,000 because that is the amount of money I believe I will actually receive. It’s my net realizable value.

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