Which of the following is the correct journal entry to record the reinstatement of an account receivable that was previously written off under the allowance method?

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

Answer: (B)

Verified step by step guidance

1. Understand the allowance method: Under the allowance method, bad debts are estimated and recorded in advance using an Allowance for Doubtful Accounts. When an account receivable is written off, it is removed from Accounts Receivable and the Allowance for Doubtful Accounts is reduced.
2. Recognize the reinstatement process: If a previously written-off account receivable is recovered, it must first be reinstated before recording the cash receipt. Reinstating the account involves reversing the write-off entry.
3. Determine the correct accounts: To reinstate the account receivable, you need to debit Accounts Receivable to restore the amount owed by the customer and credit Allowance for Doubtful Accounts to reverse the reduction made during the write-off.
4. Understand why other options are incorrect: For example, 'Debit Cash; Credit Accounts Receivable' is used when cash is received, not for reinstatement. 'Debit Bad Debt Expense; Credit Accounts Receivable' is incorrect because bad debt expense is not involved in reinstatement.
5. Apply the correct journal entry: The correct journal entry for reinstating the account receivable is 'Debit Accounts Receivable; Credit Allowance for Doubtful Accounts,' as this reverses the write-off and restores the receivable to the books.