Register now or log in to join your professional community.
the correct GAAP treatment for collection of Bad Debts which have been previously written off is as below:
FIrst the receivable needs to be reestablished because the receivable had been previously written off. Therefore, first establish the receivable again.
Once receivable is established Credit it with cash or Bank
i agree with the listed answers.
Occasionally, previously written off accounts receivable are reinstated (recovered) either because customers or other debtors pay their bills to maintain their credit standing or renegotiate the outstanding balance.Recoveries are recorded by reversing all or part of the prior write-off:• Increase gross accounts receivable for the amount the customer will owe going forward.• Increase the allowance for bad debts for the same amount.
It's called: Recovery of Bad Debt.
If your customer pays you for a debt you have already written off, how you account for the payment depends on the steps you took previously. In simplest terms, reverse what you did. If you maintain a reserve account, this will typically be a two-step process. First, you need to return the money to your receivables account. Debit receivables and credit your reserve account, and then credit receivables and debit cash. If you operate without a reserve account and expensed the bad debt, credit your bad debt expense account and debit cash.
First we reverse and stand again the bad debts amount against Provision for bad debts account and the debit cash/ bank
