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Under the direct write-off method, a $3,000 balance was written off, then the customer unexpectedly returns to pay it in full. How many journal entries are needed and what is the first one?
AOne entry only; debit Cash $3,000 and credit Receivables $3,000 to record it
BTwo entries; first debit Receivables and credit Irrecoverable debts expense $3,000
CTwo entries; first debit Cash and credit Irrecoverable debts expense $3,000
DOne entry only; debit Receivables $3,000 and credit Cash $3,000 to record it
Answer & Solution
Correct answer: B. Two entries; first debit Receivables and credit Irrecoverable debts expense $3,000
1. A reinstatement needs two entries.
2. First, flip the write-off: debit Receivables, credit Irrecoverable debts expense $3,000.
3. Second, collect the cash: debit Cash, credit Receivables $3,000.
4. A single entry cannot both reinstate and collect, so the one-entry options are wrong; the option starting with Cash skips reinstating the receivable.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4.1 "Direct Write-off Method", p.139_
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