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25 February, 22:12

Solstice Company, which uses the direct write-off method, determines on October 1 that it cannot collect $50,000 of its accounts receivable from its customer P Moore. On October 30, P. Moore unexpectedly paid his account in full to Solstice company. Record Solstice's entries to reflect recovery of this bad debt

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  1. 26 February, 01:17
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    The entries to record the recovery are:

    Dr Accounts receivable $50000

    Cr Bad debt expense account $50000

    Being reversal of bad debt written off now recovered

    Dr Cash $50000

    Cr Accounts receivable $50000

    Being receipt of cash from customer

    Explanation:

    In recording the bad recovery of $50000, the entries posted in respect of the bad debt written must first of all be reversed, thereafter, the $50000 receipt of cash is recorded.

    The reversal entries would look like this:

    Dr Accounts receivable $50000

    Cr Bad debt expense account $50000

    Being reversal of bad debt written off now recovered

    In addition, the receipt of cash is then recorded as follows:

    Dr Cash $50000

    Cr Accounts receivable $50000

    Being receipt of cash from customer

    The impact of these entries on the accounts receivable overall is nil

    Also, the impact on the income statement is also nil as an earlier expense of $50000 now being reversed by an income of the same amount.
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