Adams Co.uses the allowance method of determining bad debt expense.It collects $250 from a customer that Adams had previously written-off.As a result of collecting this $250,its:
A)total assets increases by $250.
B)net income increases by $250.
C)total assets remains the same.
D)stockholders' equity increases by $250.

Question

Quizplus · Accepted Answer

When Adams Co.collects an amount that was previously written-off,it must record two journal entries: (1)debit Accounts Receivable $250 and credit Allowance for Doubtful Accounts $250 and (2)debit Cash $250 and credit Accounts Receivable $250.The first entry increases an asset account and increases a contra-asset account.The second entry increases one asset account and decreases another asset account.Overall,there is no change in total assets.Neither entry includes a revenue or expense;as such,there is no effect on net income of total stockholders' equity.

Adams CoUses the Allowance Method of Determining Bad Debt Expense