Purpose of Debts Recovered Account Steps:

• Identify the debts recovered account as a nominal account for recording recoveries of previously written-off bad debts.
• Review choices to match the account's standard use in accounting.
• Eliminate options that misstate the account's purpose or treatment.
• Confirm the precise definition aligns with recovery of irrecoverable debts.

Why D is correct:

• The account specifically records cash received from customers whose debts were previously written off as bad debts, per standard accounting principles for bad debts recovery.

Why the others are wrong:

• A: Doubtful debts involve provisions for potential losses, not write-offs; recovery adjusts the provision, not this account.
• B: The credit balance is transferred to the income statement as other income, not debited.
• C: As a nominal account, its balance is closed to the income statement, not shown in the statement of financial position.

Final answer: D