How to Get NRV with Ada and Bde

To calculate Net Realizable Value (NRV) using ADA (Allowance for Doubtful Accounts) and BDE (Bad Debt Expense), you’ll typically be working within the context of accounts receivable. Here’s how you can determine the NRV:

1. Understand the Terms:

• NRV (Net Realizable Value): This represents the estimated amount that a company expects to receive from its accounts receivable after accounting for potential losses due to uncollectible debts.
• ADA (Allowance for Doubtful Accounts): This is a contra-asset account that reduces the total accounts receivable to reflect the estimated amount that won’t be collected.
• BDE (Bad Debt Expense): This is an income statement account representing the cost associated with uncollectible accounts receivable.

2. Calculate NRV:

• Accounts Receivable: Start with the total amount of accounts receivable.
• Subtract ADA: Subtract the allowance for doubtful accounts from the total accounts receivable. The formula is: $$\text{NRV}=\text{Accounts Receivable}-\text{ADA}$$

3. Example Calculation:

• Suppose a company has $100,000 in accounts receivable.
• The company estimates that $5,000 of these receivables are doubtful and records this in ADA.
• The NRV would be: $$\text{NRV}=100,000-5,000=95,000$$
• Therefore, the company expects to collect $95,000.

4. Link to BDE:

• Bad Debt Expense impacts the ADA because it represents the estimated uncollectible amount. When estimating BDE, this amount increases the ADA.
• The larger the BDE, the larger the ADA, and therefore, the lower the NRV.

Summary:

The NRV is calculated by subtracting the ADA from the total accounts receivable. BDE feeds into ADA, impacting the overall NRV. If you’re preparing or reviewing financial statements, this process ensures that receivables are not overstated.