Question

On January 1, Wei company begins the accounting period with a $34,000 credit balance in Allowance for Doubtful Accounts. On February 1, the company determined that $7,600 in customer accounts was uncollectible; specifically, $1,300 for Oakley Co. and $6,300 for Brookes Co.

a. Prepare the journal entry to write off those two accounts. On June 5, the company unexpectedly received a $1,300 payment on a customer account, Oakley Company, that had previously been written off in part
b. Prepare the entries to reinstate the account and record the cash received.

Answer 1

The company must make journal entries to write off uncollectible accounts and later to record the receipt of payment if a previously written-off account is paid. The write-off entry debits the Allowance for Doubtful Accounts and credits the customer accounts receivable. To reinstate and record the cash received, the entries would include debiting the reinstated account and cash while crediting the allowance and the receivable account, respectively.

Step-by-step explanation:

Journal Entries for Writing Off and Recovering Accounts

When a company determines that certain customer accounts are uncollectible, it must write off the amounts against the Allowance for Doubtful Accounts. The journal entry to write off the accounts for Oakley Co. and Brookes Co. would be as follows:

• 
  
• Debit Allowance for Doubtful Accounts $7,600
• 
  
• Credit Accounts Receivable - Oakley Co. $1,300
• 
  
• Credit Accounts Receivable - Brookes Co. $6,300

This entry decreases the company's receivables and the balance in the allowance for doubtful accounts.

If the company later receives payment on an account that was previously written off, two journal entries are required. First, the account must be reinstated:

• 
  
• Debit Accounts Receivable - Oakley Co. $1,300
• 
  
• Credit Allowance for Doubtful Accounts $1,300

Then, the payment is recorded:

• 
  
• Debit Cash $1,300
• 
  
• Credit Accounts Receivable - Oakley Co. $1,300

These reinstatement and receipt of cash entries ensure that the books reflect the recovery of the receivable and the receipt of cash accurately.

Answer 2

a. Debit Allowance for doubtful debt $1,300

Debit Allowance for doubtful debt $6,300

Credit Accounts receivable $7,600

Being entries to write off debts from Oakley Co. and Brookes Co.

b. Debit Accounts receivable $1,300

Credit Allowance for doubtful debt $1,300

Debit Allowance for doubtful debt $1,300

Credit Bad debt expense $1,300

Being entries to reinstate account receivable due from Oakley Co.

Debit Cash account $1,300

Credit Accounts receivable $1,300

Being entries to record cash received

Step-by-step explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debit that had previously been determined to have gone bad gets settled, debit cash and credit bad debt expense.