Answer
Recoveries. Strategy (c) is recommended.
This strategy treats the recovery as a correction of a previous write-off. It produces an allowance account that reflects the net experience with bad debts. Method (a) might be acceptable if the provision for bad debts were based on experience with losses without considering recoveries, but in this case, it would be advisable to use one account with a specific designation rather than the broad designation “other revenue.”
Work Step by Step
As indicated in the textbook, recoveries are usually handled by reestablishing the receivable and allowance account. The receivable is then written off. Method (c) is basically that approach.
