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 paid his account in full to Solstice company. Record Solstice's entries to reflect recovery of this bad debt

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Miss Kitty

Business

21 September, 15:05

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 paid his account in full to Solstice company. Record Solstice's entries to reflect recovery of this bad debt

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Jace Cannon · Answer 1

The entries to record the recovery are:

Dr Accounts receivable $50000

Cr Bad debt expense account $50000

Being reversal of bad debt written off now recovered

Dr Cash $50000

Cr Accounts receivable $50000

Being receipt of cash from customer

Explanation:

In recording the bad recovery of $50000, the entries posted in respect of the bad debt written must first of all be reversed, thereafter, the $50000 receipt of cash is recorded.

The reversal entries would look like this:

Dr Accounts receivable $50000

Cr Bad debt expense account $50000

Being reversal of bad debt written off now recovered

In addition, the receipt of cash is then recorded as follows:

Dr Cash $50000

Cr Accounts receivable $50000

Being receipt of cash from customer

The impact of these entries on the accounts receivable overall is nil

Also, the impact on the income statement is also nil as an earlier expense of $50000 now being reversed by an income of the same amount.