When a firm uses the allowance method to provide for losses for uncollectible accounts,the collection of an account previously written off as uncollectible requires an entry to
A) reinstate the account receivable.
B) increase the balance of the Sales account.
C) reduce the balance of Uncollectible Accounts Expense.
D) decrease the balance of the Allowance for Doubtful Accounts.

Question

Quizplus · Accepted Answer

When a previously written off account is collected, the firm needs to reinstate the account receivable by making an entry to reflect the collection of the receivable. This is because the allowance method creates a contra asset account called "Allowance for Doubtful Accounts" that reduces the balance of the accounts receivable account, which includes any accounts written off as uncollectible. Therefore, to reflect the collection of a previously written off account, the accounts receivable account needs to be increased by the amount collected through a reinstatement entry.

When a Firm Uses the Allowance Method to Provide for Losses