When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would
A) Increase net income
B) Have no effect on total current assets
C) Increase working capital
D) Decrease total current liabilities

Question

Quizplus · Accepted Answer

When an account previously written off is collected under the allowance method, the entry to record the collection reverses the write-off and recognizes the collection, which affects the allowance for doubtful accounts and cash, but does not change the total current assets because one asset (cash) increases while another (allowance for doubtful accounts) decreases by the same amount.

When the Allowance Method of Recognizing Bad Debt Expense Is