Millie's Draperies uses the allowance method of recording bad debts. On June 13, the $200 account balance of Jane Murphy was written off as uncollectible. However, on August 5, Murphy paid $80 of the amount previously written off. The entry to reinstate Jane Murphy's account would include:
A)debit Cash $80; credit Uncollectible Accounts Expense $80
B)debit Accounts Receivable $200; credit Allowance for Doubtful Accounts $200
C)debit Allowance for Doubtful Accounts $80; credit Cash $80
D)debit Accounts Receivable $80; credit Allowance for Doubtful Accounts $80

Question

Quizplus · Accepted Answer

The entry to reinstate an account that was previously written off includes debiting the Accounts Receivable account for the amount paid by the customer ($80 in this case) and crediting the Allowance for Doubtful Accounts account for the same amount. This is because the Allowance for Doubtful Accounts account was originally credited for the full amount of $200 when the account was deemed uncollectible, and now with the partial payment received, the allowance needs to be decreased by the amount of the payment that is being recognized as collectible. Therefore, choice D is the correct answer.

Millie's Draperies Uses the Allowance Method of Recording Bad Debts