What is Net Realizable Value (NRV)?

Net Realizable Value (NRV) is the estimated value of an asset or item after subtracting the costs needed to make it ready for sale. It is commonly used for valuing inventory or accounts receivable.

For inventory, NRV is the expected selling price minus any costs to prepare it for sale. For example, if an item can be sold for $1,000 but needs $100 for packaging and transportation, the NRV would be $900 ($1,000 – $100).

For accounts receivable, NRV is the estimated amount the company expects to collect from customers after accounting for any uncollectible amounts. It shows the net amount the company anticipates receiving.

Calculating NRV is important for getting a realistic value of assets, considering the costs or allowances that reduce the actual value the company can get. It helps in managing inventory, setting prices, and assessing the collectability of accounts receivable.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/

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