Which Accounts Are Affected, And In Which Direction, By The Following Business Transaction? A Customer Whose Account Was Written Off Two Years Ago Sends You A Cheque
The correct options of this multiple choice question depends upon the Methods used in recording the Bad Debts Account. So, we must consider these two methods before choosing the correct options. Under Direct Write-Off Approach , the company does not make an estimation of unpaid dues while under Allowance Approach , the company makes an estimation of uncollectible accounts / unpaid invoices by debited uncollectible expense a/c and credited Allowance for Doubtful Accounts . When it is sure that the customer failed to pay to company for the goods or services rendered, then the company debit actual Bad Debts Expense a/c and credit Accounts Receivable (AR) a/c under Direct Write-Off Method while under Allowance Method, debit Allowance for Doubtful Accounts and credit accounts receivable a/c. After two years, now as the customer is making payment to the company for goods sold or services rendered to him by the company, then there is Bad Debts Recovery. Under Direct Write-Off Method, two...