A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off?

Question

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The collection of an account previously written off under the allowance method would increase the accounts receivable account and the allowance for doubtful accounts account. This is because when an account is written off, the allowance for doubtful accounts is debited and accounts receivable is credited. When the account is later collected, accounts receivable is debited and the allowance for doubtful accounts is credited. The bad debt expense account would not be affected as it was already recognized when the account was written off.

A Company Uses the Allowance Method to Account for Bad