Answer (A) is correct . The entry to record this transaction is to debit receivables, credit the allowance, debit cash, and credit receivables. The result is to increase both an asset (cash) and a contra asset (allowance for bad debts). These appear in the current asset section of the balance sheet. Thus, the collection changes neither the current ratio nor working capital because the effects are offsetting. The credit for the journal entry is made to the allowance account on the assumption that another account will become uncollectible. The company had previously estimated its bad debts and established an appropriate allowance. It then (presumably) wrote off the wrong account. Accordingly, the journal entry reinstates a balance in the allowance account to absorb future uncollectibles.
Answer (B) is incorrect because Neither the current ratio nor working capital is affected.
Answer (C) is incorrect because Neither the current ratio nor working capital is affected.
Answer (D) is incorrect because Neither the current ratio nor working capital is affected.
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