Dishonored Cheque Reversal Entry

Steps:

• On 1 April, record receipt: Debit Bank, Credit Zafar (reduces accounts receivable).
• On 12 April, cheque bounces: Reverse initial entry to reinstate debt.
• Debit Zafar's account (increases receivable) and Credit Bank (removes uncollected funds).
• This restores Zafar's balance without writing off the debt.

Why D is correct:

• Under double-entry bookkeeping, dishonored cheques require reversing the cash receipt to reinstate the debtor's account per standard accounting principles.

Why the others are wrong:

• A: Irrecoverable debts debit to bank writes off debt against bank, which is incorrect as no cash was received.
• B: Irrecoverable debts to Zafar prematurely writes off the debt without evidence of non-recovery.
• C: Provision for doubtful debts to Zafar adjusts for estimated losses, not a specific bounced payment.

Final answer: D