Question

Solstice Company, which uses the direct write-off method, determines on October 1 that it cannot collect $50,000 of its accounts receivable from its customer,
P. Moore. On October 30, P. Moore unexpectedly pays his account in full to Solstice Company.
Required:
1. Record Solstice's entries to reflect recovery of this bad debt.
2. Record the reinstatement of the account previously written off.

Answer 1

Answer:

1.Oct 30 Dr Accounts receivable—P. Moore $50,000

Cr Bad debts expenses $50,000

2.Oct 30 Dr Cash $50,000

Cr Accounts receivable—P. Moore $50,000

Explanation:

Solstice Company

General Journal

1.

Oct 30

Dr Accounts receivable—P. Moore $50,000

Cr Bad debts expenses $50,000

2.Oct 30

Dr Cash $50,000

Cr Accounts receivable—P. Moore $50,000

Answer 2

Answer:

1. Debit Cash account  $50,000

  Credit Accounts receivable  $50,000

  Being entries to reflect the recovery of debt previously written off.

2. Debit Accounts receivable $50,000

   Credit Bad debt expense  $50,000

Being entries top reinstate debt previously 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 and may be written off.  

Using the direct write off method, to account for such receivables, debit bad debt expense and credit accounts receivable

Where a debit that had previously been determined to have gone bad gets settled, to reinstate the debt written off initially, debit accounts receivables and credit bad debt. Then to account for the collection, debit cash and credit accounts receivable.