Question

The following information is available about a company's accounts receivable:

June 30 - Accounts receivable balance: $50,000.

Nov 15 - Received Cash of $40,000, and wrote off the remaining balance.

Dec 15 - Recovered the amount written off on Nov 15.

Under the direct method, the entries to record the cash recovered on Dec 15 are:

Select one:

A. 1. Debit Accounts Receivable, Credit Bad Debt Expense for $10,000; 2. Debit Cash, Credit Accounts Receivable for $10,000.

B. 1. Credit Accounts Receivable, Debit Bad Debt Expense for $10,000; 2. Credit Cash, Debit Accounts Receivable for $10,000.

C. . Debit Accounts Receivable, Credit Bad Debt Expense for $40,000; 2. Debit Cash, Credit Accounts Receivable for $40,000

D.  1. Credit Accounts Receivable, Debit Bad Debt Expense for $40,000; 2. Credit Cash, Debit Accounts Receivable for $40,00

Answer 1

• Under DIRECT WRITE OFF method, there is no Allowance account.
• Hence, when the amount is written off, Bad Debt Expense is debited.
• When written off amount is recovered, following entries will be made:
  #1: [Debit] Accounts receivables and [Credit] Bad Debt Expense [to reinstate accounts receivables]
  #2: [Debit] Cash and [Credit] Accounts receivables (to record collection of amount).
• Here, amount recovered = $ 50000 – 40000 = $ 10,000
• Correct Answer = Option ‘A’
  Debit Accounts Receivable, Credit Bad Debt Expense for $10,000; 2. Debit Cash, Credit Accounts Receivable for $10,000.