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Under the allowance method, if a specific customer's accounts receivable is identified as uncollectible, it is written off by removing the amount from Accounts Receivable. The entry to write off a bad account affects only balance sheet accounts:
1) Debit - Allowance for Doubtful Accounts.
Credit - Accounts Receivable.
After a seller has written off an accounts receivable, it is possible that the seller is paid part or all of the account balance that was written off. Under the allowance method, if such a payment is received (whether directly from the customer or as a result of a court action) the seller will take the following two steps:
A) Debit - Accounts Receivable.
Credit - Allowance for Doubtful Accounts.
B) Debit - Cash or Bank
Credit - Accounts Receivable
Therefore, The receipt is called as Revenue Receipt.
Answer : b
Bad debt recovered during year is a Revenue Receipt
B is the right answer and Mr. Abdul Qayyum has explained it very well
