Question

Giant Company uses the direct write-off method of recording credit losses. Giant Company wrote off the $1,600 account of Donald Co. in October, 2016. In February, 2017, Giant Company received a final $600 payment from Donald’s trustee in bankruptcy.
Giant should make the following entry or entries to record the payment:

A) Cash 600
Allowance for Doubtful Accounts 600
B) Allowance for Doubtful Accounts 600
Bad Debts Expense 600
C) Accounts Receivable—Donald Co. 600
Allowance for Doubtful Accounts 600
D) Accounts Receivable—Donald Co. 600
Bad Debts Expense 600
Cash 600
Accounts Receivable—Donald Co. 600

Answer 1

SOLUTION

Option D is correct.

When bad debts of 1,600 witten off following journal entry would be passed-

Accounts titles	Debit ($)	Credit ($)
Bad debts expense	1,600
Account receivables		1,600

If amount collected form receivables that have been written off earlier. Then first reverse entry of above entry will be passed for amount collected and then it will debited to cash which are as follow-

Accounts titles	Debit ($)	Credit ($)
Account receivables	600
Bad debts expense		600
Cash	600
Account receivables		600