The following accounting entries are made when bad debt is recovered
Debit bad debts accounts and credit bad debt recovered account
Debit debtors accounts and recovered account
Debit bad debts recovered account and credit bad debts account
Debit bad debts account and credit profit and loss account
Correct answer is D
At times a debtor whose account had earlier been written off by a creditor as a bad debt may decide to make a payment, this is called recovery of bad debts. While posting the journal entry for recovery of bad debts it is important to note that it is treated as a gain to the business & that the debtor should not be credited as in case of sales.
While journalizing for bad debts, debtor’s personal account is credited and bad debts account is debited because bad debts written off are treated as a loss to the business and now when they are recovered it is seen as a fresh gain.
Journal entry for recovery of bad debts is as follows;
| Cash or Bank A/C | Debit | Real A/C | Dr. What comes in |
| To Bad Debts Recovered A/C | Credit | Nominal A/C | Cr. income & gains |
Debit (Cash or Bank) depending on how the money is received
Rules applied as per modern or US style of accounting
| Cash/Bank A/c | Debit the increase in assets |
| Bad Debts Recovered A/c | Credit the increase in income |
The closing journal entry for bad debts recovered would be as follows;
| Bad Debts Recovered A/C | Debit |
| To Profit and Loss A/C | Credit |