Question

Let's assume that VFC collects the $800 from Fast Fashions that was previously written off.

This recovery would be recorded with the following journal entries.
a. Debit Cash, Credit Allowance for Doubtful Accounts.
b. Debit Accounts Receivable, Credit Allowance for Doubtful Accounts.
c. Debit Cash, Credit Accounts Receivable.
d. Debit Allowance for Doubtful Accounts, Credit Cash.

Answer 1

The collection of a previously written-off account receivable involves two journal entries: reversing the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts, followed by debiting Cash and crediting Accounts Receivable to record the cash received.

Step-by-step explanation:

When VFC collects the $800 from Fast Fashions that was previously written off, the correct journal entries reflect the reinstatement of the account and then the receipt of cash. The collection is a two-step process. First, we must reverse the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts. Then, we record the cash receipt by debiting Cash and crediting Accounts Receivable.

The correct journal entries are therefore:

1. Debit Accounts Receivable, Credit Allowance for Doubtful Accounts.
2. Debit Cash, Credit Accounts Receivable.

This process ensures that the accounts receivable and the allowance accounts are properly updated, and it reflects the cash increase in the company's assets.