Recovery of Bad Debts
Occasionally, a business may find that an amount that it had previously written off as a bad debt is received at a later date. The receipt of such an amount is called recovery of bad debts. Clearly, this cannot be credited to the personal account of the debtor as that account was closed down when the amount due from that debtor was written off as bad debt. The entry to record a bad debts recovery would, therefore, be as follows:
Dr: Cash (or bank) A/c.
Cr.: Bad debts recovery A/c
With the amount recovered
Bad Debts Recovery Account will, therefore, show a credit balance at the end of the financial year and will be transferred to the credit side of the profit & loss account as an income.
John has learned that David who owed him $960 has died to leave no estate behind. John decides to write off this amount as a bad debt. Show the journal entry. Three months later David’s son came and paid off the amount due from John. Show the bad debts recovered journal entry.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.