Bad debt recovery

Bad debt recovery means getting paid for a receivable that was previously written off.

If the receivable was previously written off from the books and subsequently, the amount due is collected, following journal entries will be made.

Accounts receivable – Debit
Bad debts recovered (Reduce bad debt expense OR record other income in P/L) – Credit

Cash – Debit
Accounts receivable – Credit

The above entries can be recorded in one step as well, as shown below:

Cash – Debit
Bad debts recovered (Reduce bad debt expense OR record other income in P/L) – Credit

Let’s take a look at the following example to understand these concepts.

Let’s take a look at the following example to understand these concepts.

Example – Bad debt recovery

Let’s take the example of our previous chapter “What is an allowance for doubtful debts?”. On 28 February, following are the details of accounts relevant to receivables:

  • Accounts receivable Dr. balance = $77,000
  • Allowance for doubtful debts Cr. balance = $12,000

In the month of March, the Fast Courier Co. earned credit sales revenue of $40,000 and collected $50,000 of the receivables. Furthermore, on 20th March, the company received $3,000 from a customer which was previously written off as bad debt. On 31st March, the company estimated the uncollectible receivables and concluded that the estimated doubtful debts are only $2,500, mainly because of improved financial condition of its majority customers.

Following journal entries will be made to record the allowance for doubtful debts.

Entries - Bad debt recovery
Example - Bad debt recovery