On June 20 of the prior year,a company determined that a customer's account receivable was uncollectible and that the account should be written off.Unexpectedly,on September 1 of the current year,the customer paid the account in full.Assuming the allowance method is used to account for bad debts,what effect will this recovery have on the company's net income and total assets?
A)Decrease in net income; no effect on total assets.
B)No effect on net income; no effect on total assets.
C)Decrease in net income; decrease in total assets.
D)Increase in net income; no effect on total assets.
E)No effect on net income; decrease in total assets.

Question

Quizplus · Accepted Answer

When a company writes off an account under the allowance method, it does not affect net income because the expense was already recognized when the allowance was created. The recovery of the account simply reverses the write-off, increasing both accounts receivable and the allowance for doubtful accounts, but it does not affect net income. Total assets are not affected because the increase in cash from the payment is offset by the decrease in accounts receivable (or the reversal of the write-off).

On June 20 of the Prior Year,a Company Determined That