Question

True or False: When an account receivable that has been written off is subsequently collected, the account receivable is said to be reinstated.

Answer 1

True, when an account receivable that has been written off is collected, it is reinstated first, before recognizing the cash receipt.

Step-by-step explanation:

The statement is True. When an account receivable that had previously been written off is subsequently collected, the original entry where the account was written off must be reversed, effectively reinstating the receivable before recognizing the cash receipt. This process involves two steps in the accounting records:

1. The written-off receivable must be reinstated on the balance sheet by debiting the accounts receivable and crediting the allowance for doubtful accounts.
2. Then, the collection of the receivable is recorded by debiting cash and crediting the accounts receivable.

This ensures that the financial statements accurately reflect the recovery of the receivable and the increase in cash. It is important for businesses to correct any previous adjustments that no longer apply due to the change in circumstances, maintaining the integrity of their financial reports.