On June 16, 2018, Evergreen Inc. wrote off the $200 receivable from customer M. Simmons. On October 14, 2018, Evergreen unexpectedly receives $200 cash from M.Simmons. How should Evergreen record the $200 payment from M. Simmons? Evergreen uses the allowance method.

Question

Quizplus · Accepted Answer

Since Evergreen uses the allowance method, the write-off of the $200 receivable from M. Simmons would have resulted in a debit to Bad Debts Expense and a credit to Allowance for Bad Debts. When the cash is received from M. Simmons, Evergreen needs to reverse the previous entry by debiting Accounts Receivable - M. Simmons and crediting Allowance for Bad Debts (to reflect that the previously written-off amount is no longer uncollectible), and then record the actual cash received by debiting Cash and crediting Accounts Receivable - M. Simmons. The correct entry to record the $200 payment from M. Simmons is therefore to debit Accounts Receivable - M. Simmons and credit Allowance for Bad Debts (to reverse the previous write-off), and then to debit Cash and credit Accounts Receivable - M. Simmons (to record the actual cash receipt).