Question

On June 12, because management knew with near certainty that it had no chance of collection, Sheave Company wrote off a customer's account balance in the amount of $350. On November 3, the customer mailed a payment for $350 to Sheave. To record the receipt of this payment from the customer, the company would debit:

a. Bad Debt Expense and credit Cash

b. Accounts Receivable and credit Bad Debt Expense, then debit Cash and credit Allowance for Doubtful Accounts

c. Cash and credit Accounts Receivable

d. Accounts Receivable and credit Allowance for Doubtful Accounts, then debit Cash and credit Accounts Receivable

Answer 1

Recovery of Bad Debt:

d. Accounts Receivable and credit Allowance for Doubtful Accounts, then debit Cash and credit Accounts Receivable.

On June 12, as management was certain that customer would not make payment for a sum of $350, they must have passed an entry to write off $350 against the allowance for doubtful accounts. Such entry would be as follows:

On November 3, Payment of $350 is received for such already written off accounts receivables. To receive such payments in the respective customer's account, entry passed for writing off such right to recover will be reversed and later on cash account will be debited to receive such payment. Following two entries will be passed to record transaction: