Question

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

Answer 1

Answer:

Debit Cash $2,000

Credit  Bad debt  $2,000

Being entries to record receivables settled by Hopkins that had previously been written off.

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.  

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debit that had previously been determined to have gone bad gets settled, debit cash and credit Bad debt or other income.

Answer 2

Answer:

a. First set of entries:

Debit: Accounts receivable with $2,000

Credit: Bad debt expenses with $2,000

b. Second set of entries:

Debit: Cash with $2,000

Credit: Account receivables $2,000

Explanation:

These entries will appear as follows in the book Gideon Company on July 10:

Details                                                     DR ($)                  CR ($)

Accounts receivable                              2,000

Bad debt expenses                                                            2,000

Being the transfer of the bad debt recovered back to the accounts receivable.

Cash                                                         2,000

Account receivables                                                         2,000

Being the cash income received in respect of bad debt recovered.