Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10, Newton received a check for the full amount of $3,000 from Best. On July 10, the entry or entries Newton makes to record the recovery of the bad debt is:

Question

Quizplus · Accepted Answer

Option A is the correct entry for the recovery of bad debt using the allowance method. The company would first reverse the write-off that was made on May 3 by debiting the accounts receivable and crediting the allowance for doubtful accounts for $3,000. Then, when the check is received on July 10, the entry would be to debit cash and credit accounts receivable for $3,000, as the original receivable has now been collected. Option B incorrectly records the $3,000 as a sale, which it is not. Option C and D are not correct because they do not reverse the original write-off made on May 3.

Newton Company Uses the Allowance Method of Accounting for Uncollectible