18. A company collects cash from a customer after it had written off the account as uncollectible. The company needs to make a journal entry to reinstate the customer's account using the allowance method. Which entry should be recorded?
Answer: C
Debit accounts receivable; credit allowance for doubtful accounts
When a company collects cash from a customer after previously writing off their account as uncollectible, it needs to reinstate the customer's account. This is done by debiting accounts receivable to recognize the reinstated amount and crediting the allowance for doubtful accounts to reverse the prior write-off.
A) Debit allowance for doubtful accounts; credit bad debt expense
This option is incorrect because it does not address the reinstatement of the accounts receivable. Instead, it suggests adjusting the bad debt expense, which is not relevant in this scenario since the account is being reinstated rather than being newly recognized as uncollectible.
B) Debit accounts receivable; credit bad debt expense
This option is also incorrect because while it correctly debits accounts receivable, it mistakenly credits bad debt expense. The appropriate credit should be to the allowance for doubtful accounts, not bad debt expense, since the account was previously written off.
C) Debit accounts receivable; credit allowance for doubtful accounts
This option is correct as it accurately reflects the necessary journal entry. By debiting accounts receivable, the company reinstates the customer's account, and by crediting the allowance for doubtful accounts, it reverses the previous write-off, maintaining accurate financial records.
D) Debit allowance for doubtful accounts; credit accounts receivable
This option is incorrect because while it correctly debits the allowance for doubtful accounts, it incorrectly credits accounts receivable. The accounts receivable should be debited to show the reinstatement of the customer's account, not credited.
Conclusion
Option C is definitively the correct answer as it correctly reflects the accounting treatment required when a previously written-off account is reinstated upon collection. All other options fail to accurately address the necessary entries, either misclassifying accounts or not following proper accounting procedures for reinstating uncollectible accounts.