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Recovery of bad debts previously written off

5 August, 2015 - 14:41

This reverses the bad debt written off almost, so needs to account for gst recollected, accounts receivable previously written off, as well as cash. The amount is not recorded back in the bad debts allowance account though, it is recorded in a separate bad debts recovered account. The original transaction for writing off was

  1. DR - Allowance for Bad Debts
  2. DR – GST
  3. CR - A/R,

so the reversal is is

  1. DR - A/R,
  2. CR - Bad Debts Recovered,
  3. CR - GST

(In the above, sum of DR equals sum of CR). Bad Debts Recovered increases with Credits, so isn't an asset, and it isn't a liability, so it is actually an equity (income) account. The Allowance for Bad Debts account is not re-credited because this allows tracking of recoverable bad debts that were previously written off.

To record the cash recovered, a second entry is then

  1. DR -Cash in Bank
  2. CR - A/R

Recording the equivalent DR to A/R and Cr to A/R in the separate transactions may not be necessary, but it seems clearer.