What It Is:

Net receivables refers to the net amount of money remaining after deducting the provision for bad debt. It is primarily used in businesses that sell on credit.

How It Works/Example:

Companies often sell theeci goods and services on credit, which means that the purchaser may take the item without paying for it upfront. When the payment is due later, some purchasers find themselves unable to pay. According to generally accepted accounting principles (GAAP), the company selling the item should estimates the percentage of customers who will be unable to pay. The company accordingly takes a charge against receivables, known as a bad debt expense or uncollectible accounts expense. What is left after deducting for bad debt is known as net receivables.

For example, a business sells $100,000 worth of merchandise on credit in May. After analyzing its accounts, the company determines that 2% of that amount will be uncollectible (for various reasons). The company would then make an entry on its books for an uncollectible expense of $2,000. Therefore, the company’s net receivables for May will be $98,000 ($100,000 - $2,000 = $98,000). 

Why It Matters:

Companies often sell their goods and services on credit, which means that the purchaser may take the item without paying for it upfront. When the payment is due later, some purchasers find themselves unable to pay. According to generally accepted accounting principles (GAAP), the company selling the item should estimates the percentage of customers who will be unable to pay. The company accordingly takes a charge against receivables, known as a bad debt expense or uncollectible accounts expense. What is left after deducting for bad debt is known as net receivables.
For example, a business sells $100,000 worth of merchandise on credit in May. After analyzing its accounts, the company determines that 2% of that amount will be uncollectible (for various reasons). The company would then make an entry on its books for an uncollectible expense of $2,000. Therefore, the company’s net receivables for May will be $98,000 ($100,000 - $2,000 = $98,000).