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Rs. 200 received from Smith whose account, was written off as a bad debt should be credited to :
- a)Bad Debts Recovered account;
- b)Smith’s account;
- c)Cash account.
- d)Bad debts account
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Rs. 200 received from Smith whose account, was written off as a bad de...
The correct answer is option 'A', i.e. Bad Debts Recovered account.
Explanation:
When a debt is written off as bad, it means that the business has accepted that the amount is not recoverable from the debtor. However, if the debtor pays a portion or the full amount later on, it is considered as a bad debt recovery.
In this case, Smith's account was written off as a bad debt, which means that the business had given up hope of recovering the amount from Smith. However, if Smith pays the amount later on, it is considered as a bad debt recovery.
Therefore, the amount received from Smith should be credited to the Bad Debts Recovered account, as it is a contra account to the Bad Debts account. This will reflect the recovery of the previously written off bad debt.
Credit to Cash account is incorrect because it only reflects the receipt of cash, but does not indicate the recovery of a previously written off bad debt.
Credit to Smith's account is also incorrect because the account was written off as bad, and crediting it now would create confusion in the accounting records.
Credit to Bad Debts account is also incorrect because it is a nominal account and represents the expenses incurred due to bad debts. Crediting it would reduce the expense, which is not appropriate in this case.
Explanation:
When a debt is written off as bad, it means that the business has accepted that the amount is not recoverable from the debtor. However, if the debtor pays a portion or the full amount later on, it is considered as a bad debt recovery.
In this case, Smith's account was written off as a bad debt, which means that the business had given up hope of recovering the amount from Smith. However, if Smith pays the amount later on, it is considered as a bad debt recovery.
Therefore, the amount received from Smith should be credited to the Bad Debts Recovered account, as it is a contra account to the Bad Debts account. This will reflect the recovery of the previously written off bad debt.
Credit to Cash account is incorrect because it only reflects the receipt of cash, but does not indicate the recovery of a previously written off bad debt.
Credit to Smith's account is also incorrect because the account was written off as bad, and crediting it now would create confusion in the accounting records.
Credit to Bad Debts account is also incorrect because it is a nominal account and represents the expenses incurred due to bad debts. Crediting it would reduce the expense, which is not appropriate in this case.
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Community Answer
Rs. 200 received from Smith whose account, was written off as a bad de...
Answer _A
we should not credit debtorA/c
we should credit to bad debts recovered A/c
because it Income to us
we should not credit debtorA/c
we should credit to bad debts recovered A/c
because it Income to us
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Rs. 200 received from Smith whose account, was written off as a bad debt should be credited to :a)Bad Debts Recovered account;b)Smith’s account;c)Cash account.d)Bad debts accountCorrect answer is option 'A'. Can you explain this answer?
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