When using the allowance method,after a company has previously written off an account,________.
A) the company continues to send monthly statements to the customers whose accounts have been written off
B) the company cannot collect from these customers because their accounts have been written off
C) when a customer pays on an account that has been written off, the company needs to reverse the write-off to the Allowance for Bad Debts account and then record the receipt of cash
D) the company does not need to reestablish the receivable account

Question

Quizplus · Accepted Answer

When a customer pays on an account that has been previously written off, the company needs to reverse the write-off to the Allowance for Bad Debts account and then record the receipt of cash. This is because the write-off entry reduced both the Accounts Receivable and the Allowance for Bad Debts accounts. When the customer pays, it only affects the Accounts Receivable account, so the write-off needs to be reversed to properly record the receipt of cash. The company does not need to reestablish the receivable account, but it does need to record the cash receipt properly. Option A is incorrect because the company should not continue to send monthly statements to customers whose accounts have already been written off. Option B is incorrect because the fact that an account has been written off does not mean that it cannot be collected. Option D is incorrect because the company needs to record the receipt of cash properly by reversing the write-off.

When Using the Allowance Method,after a Company Has Previously Written