When a previously written off account is collected, which journal entry is most appropriate?

• A. Debit Accounts Receivable; Credit Allowance for Doubtful Accounts
• B. Debit Bad Debt Expense; Credit Cash
• C. Debit Cash; Credit Accounts Receivable
• D. Debit Accounts Receivable; Credit Allowance for Doubtful Accounts, then Debit Cash; Credit Accounts Receivable

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the scenario. A previously written-off account means that the company had earlier deemed the account uncollectible and removed it from Accounts Receivable by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable.
2. Step 2: When the account is collected, the first step is to reverse the write-off. This is done by debiting Accounts Receivable to reinstate the account and crediting Allowance for Doubtful Accounts to reduce the allowance balance.
3. Step 3: After reinstating the account, record the collection of cash. This is done by debiting Cash to reflect the receipt of money and crediting Accounts Receivable to remove the balance from the customer's account.
4. Step 4: Ensure that the journal entries are properly recorded in the general ledger. The reversal entry and the cash collection entry should be posted separately to maintain clarity in the accounting records.
5. Step 5: Review the impact of these entries on the financial statements. The reversal increases Accounts Receivable and decreases Allowance for Doubtful Accounts, while the cash collection increases Cash and decreases Accounts Receivable.