Question

On June 16, 2018, Evergreen Inc. wrote off the $200 receivable from customer M. Simmons. On October 14, 2018, Evergreen unexpectedly receives $200 cash from M.Simmons. How should Evergreen record the $200 payment from M. Simmons? Evergreen uses the allowance method.A. Debit Accounts Receivable-M. Simmons and credit Bad Debts Expense: debit Cash and credit Accounts Receivable-M. Simmons.B. Debit Cash and credit Bad Debts Expense.C. Debit Cash and credit Allowance for Bad Debts.D. and credit Allowance for Bad Debts; debit Cash and credit Accounts Debit Accounts Receivable-M. Simmons Receivable- M. Simmons

Answer 1

Answer:

A) Debit Accounts Receivable-M. Simmons and credit Bad Debts Expense: debit Cash and credit Accounts Receivable-M. Simmons.

Explanation:

June 16, 2018 (Simmons's debt is written off)

• Dr Bad Debts Expense account 200
• Cr Accounts Receivables account 200

Since Simmons's debt  is written off as bad debt, accounts receivable must be decreased (credited) and the bad debt expense recorded (debited).

Oct 14, 2018 (Simmons pays his debt, first the write off must be reversed)

• Dr Accounts Receivables account 200
• Cr Bad Debts Expense account 200

Before recording the payment, the write off must be reversed.

Oct 14, 2018 (Simmons payment is recorded)

• Dr Cash account 200
• Cr Accounts Receivables account 200

Since the payment was received, cash should increase (debited) and the accounts receivable should decrease (credited).