The company reports net accounts receivable of $154,000 on its December 31, 2017, balance sheet. The Allowance for Bad Debts has a credit balance of $17,000. What is the balance of Accounts Receivable before the allowance?

To find the balance of Accounts Receivable before the allowance for bad debts, you need to reverse the effect of the allowance from the net accounts receivable reported on the balance sheet.

Net Accounts Receivable = Accounts Receivable (before allowance) - Allowance for Bad Debts

Given: Net Accounts Receivable = $154,000 Allowance for Bad Debts = $17,000

Now, rearrange the equation to solve for Accounts Receivable before the allowance: Accounts Receivable (before allowance) = Net Accounts Receivable + Allowance for Bad Debts

Plug in the given numbers: Accounts Receivable (before allowance) = $154,000 + $17,000 Accounts Receivable (before allowance) = $171,000

So, the balance of Accounts Receivable before the allowance for bad debts is $171,000.

Extra: Accounts receivable represents the money owed to a company by its customers for goods or services that have been delivered or used, but not yet paid for. In accounting, it's classified as a current asset on the balance sheet because it is expected to be converted to cash within one year. However, when a company recognizes that some of its receivables might not be collected, they create an "Allowance for Bad Debts" (also known as "Allowance for Doubtful Accounts"), which is a contra asset account that represents the amount of accounts receivable that are expected to turn into bad debts.

The balance in the allowance for bad debts is estimated through an analysis of the receivables and past experience. It's a way of showing the likely actual value by acknowledging some losses beforehand. A credit balance in this allowance account shows the estimated amount of accounts receivable which the company doesn't expect to collect. When you add this allowance back to the net accounts receivable, you get the total amount of outstanding accounts receivable before any bad debt allowance has been deducted. This is important because it shows the gross amount of receivables, indicating what the firm has billed, which is useful for analysis of the company's revenue and credit practices.