March 11 Dexter determines that it cannot collect $45,000 of its accounts receivable from Leer Co. 29 Leer Co. unexpectedly pays its account in full to Dexter Company. Dexter records its recovery of this bad debt. Prepare journal entries to record the above selected transactions of Dexter.

The following journal entries would be recorded in Dexter's books:

March 11: When Dexter determines that it cannot collect $45,000 of its accounts receivable from Leer Co.

Debit Bad debt expense $45,000

Credit Accounts receivable $45,000

March 29: When Leer Co. unexpectedly pays its account in full to Dexter Company:

Debit Accounts receivable $45,000

Credit Bad debt expense $45,000

To recognize the cash payment:

Debit Cash                                

Credit Accounts receivable    

Explanation: The above journals were premised on the assumption that Dexter Company applies the direct write-off method in accounting for uncollectible accounts.

A reversal of the journal entries was recorded on March 29 because the two events occurred in the same month, before Dexter Company closes its account for the month of March. The purpose of the reversal was to reinstate the accounts receivable to 100 per cent. But if the write-off entries were recorded long ago (past year), and Leer Co. did a part settlement of the amount that was deemed collectible and suddenly paid the amount that was already written off, then the entries to be recorded would be Debit Cash, Credit Other income / recovery account.

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