Record the accounting entry for bad debts recovered.

a) At the time of Receipt

     Cash/Bank                 Dr         xxxxx

To Debtor a/c                                              xxxxx

b) Transfer entry to statement of p&l (assume bad debt charged in previous years)

     Debtor     Dr                             xxxxx

To bad Debt Recovered                           xxxxx

CASH (DR)

           Income (P& loss)              (CR)

debt : receivable 

credit : bad debt expenses 

--------------------------------------

paying 

debt : cash 

credit : receivable 

Occasionally, a bad debt previously written off may subsequently settle its debt in full or in part. In such case, it will be necessary to cancel the effect of bad debt expense previously recognized up to the amount settlement.

ABC LTD sells goods to DEF LTD for $500 on credit. ABC LTD subsequently finds out that DEF LTD is being liquidated and therefore the prospects of recovering its dues are very low. ABC LTD therefore writes off the receivable from its books. However, the administrator appointed to oversee the liquidation of DEF LTD instructs the company to pay $300 to ABC LTD in full settlement of its dues.

As $300 of the bad debt has been recovered, it is necessary to cancel the effect of previously recognized bad debt expense up to this amount. The accounting entry will therefore be as follows: