Definition:

Net Accounts Receivable is the total amount of money owed to a company by its customers for goods or services delivered, minus any allowances for doubtful accounts or returns.

Examples

If a company has $100,000 in accounts receivable and expects $5,000 to be uncollectible, the net accounts receivable would be $95,000.

Formula:

Net Accounts Receivable = Total Accounts Receivable - Allowance for Doubtful Accounts

How to use the metric:

Net Accounts Receivable is used to assess the liquidity of a company and its ability to collect payments from customers. It helps in evaluating the effectiveness of a company's credit policies and collection processes.

Limitations:

This metric may not accurately reflect the true collectibility of receivables if the allowance for doubtful accounts is underestimated. It also does not account for the timing of cash flows.

Applies to:

Net Accounts Receivable is applicable across various industries, particularly those with significant credit sales, such as retail, manufacturing, and wholesale.

Doesn't apply to:

Industries that primarily operate on a cash basis, such as some service industries, may not find this metric as relevant because they have minimal accounts receivable.

Summary:

Net Accounts Receivable is a crucial financial metric that indicates the amount of money a company expects to collect from its customers after accounting for potential uncollectible debts. It is essential for evaluating a company's credit management and liquidity but may not fully capture the timing and risk of cash flows.