Bad Debt Recovery: How to Record Payment from a Previously Written Off Customer
Recording the Original Write-off:
1. Debit: June 12 - Allowance for Doubtful Debts - $350
Credit: June 12 - Accounts Receivables Account - $350
Recording the Payment Receipt:
Step 1: Reverse the original write-off:
Debit: Nov 3 - Accounts Receivables Account - $350
Credit: Nov 3 - Allowance for Doubtful Debts - $350
Step 2: Record the Cash Receipt:
Debit: Nov 3 - Cash - $350
Credit: Nov 3 - Accounts Receivables Account - $350
By following these steps, Sheave Company will properly account for the payment from the customer and adjust their financial records accordingly. This process ensures transparency and accuracy in financial reporting.