# How to Determine the Cash Realizable Value in Accounting

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The cash realizable value, or net realizable value, of a company’s accounts receivable is the amount the company expects to receive in cash as payment from customers. The net realizable value equals the dollar amount of accounts receivable minus the dollar amount of allowance for uncollectible accounts. Accounts receivable is the amount of money a company’s customers owe it for purchases made on credit. Allowance for uncollectible accounts is an account a company uses to estimate the dollar amount of its accounts receivable balance that will be uncollectible. You can calculate the cash realizable value of your accounts receivable to estimate how much money you will collect.

Estimate the percentage of the dollar amount of your accounts receivable you expect will be uncollectible. You can base this on past experience if you have an established business. For example, estimate that 1.5 percent of your accounts receivable will be uncollectible.

Multiply the percent you expect will be uncollectible by the dollar amount of your accounts receivable to determine the dollar amount of allowance for uncollectible accounts. For example, assume your accounts receivable balance is \$150,000. Multiply 1.5 percent, or 0.015, by \$150,000. This equals an allowance for uncollectible accounts amount of \$2,250.

Subtract the dollar amount of allowance for uncollectible accounts from the dollar amount of your accounts receivable balance to calculate the net realizable value of your accounts receivable. For example, subtract \$2,250 in allowance for uncollectible accounts from \$150,000 in accounts receivable. This equals a net realizable value of \$147,750, which is the amount you can expect to collect from your accounts receivable.

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