Question

A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off?.

Answer 1

d. No effect No effect

Step-by-step explanation:

When allowance method is followed then bad debts allowance is created for non-collectible debts balance.

This balance clearly depicts the debtors which are not collectible and then set off against accounts receivables balance.

When an already written off bad debt is recovered, such recovery increases income only, and does not effect any allowance account or accounts receivable account.

As for this already expense had been allowed.

And amount recovered is no more standing due in accounts receivables balance.

Thus, correct option is

d. No effect No effect