What are Bad debts recovered | Example | Journal Entry

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  1. What is b/debt recovered?
  2. Journal entry with the golden rule.
  3. Journal entry with modern rule.

1. What are bad debts recovered?

The Bad debts recovered is that amount which was written as bad debts in a previous financial year and received in a current financial year. It is treated as income/gain of business for this year because in a previous financial year it was written as bad debt and loss/expanse was claimed in the books. 

For Example: –

Ram is our customer, He bought goods from us worth Rs 1,00,000. After 6 months approximately, he made a payment to us of Rs 70,000. After some time, his business occurring losses and he shut down it. On the closing of his business, our sale team approve us that now we can’t recover balance amount from his estate because he is not traceable right now. 

So, on the approval of the sales department, our accounting department treated this amount Rs 25,000/-  as bad debts in the books of account.

At the end of the Financial year, These expenses/losses have approved by the Chartered Accountant. 

But in the next financial year, Ram comes back and started his business again and he approaches us for the supply of goods to him. Our sales team agree to the supply of goods to him, only after when he will pay his last year outstanding amount. 

He is agreed with our sales team and paid the last year outstanding amount of Rs 25,000 to us, which is written as bad debts in the last financial year.

Because his outstanding amount is treated as bad debts earlier and claimed as loss in the books of the last financial year. 

Now, we have to treat this recovered amount as income in this financial year. So, that’s why we create a new income account of Bad debts Recovered account. 

2. Journal entry with the golden rule:

Example 1:

01/01/2018 received Rs 5,000/- written as bad in 2016/17.

Cash A/c -> Assets A/c – > Real A/c-> Received cash -> cash comes in -> Debit

B/Debts recovered -> Gain A/c -> Nominal A/c -> All Income and Gain  -> Credit

The journal entry for the transaction is the following:

Bad debts recovered journal entry  - What are Bad debts recovered | Example | Journal Entry
B/debts recovered journal entry

3. Journal entry with the modern rule:

Example 1:

01/01/2018 received Rs 5,000/- written as bad in 2016/17.

Cash A/c -> Assets A/c – > assets Rule ->increase in assets  -> Debit

B/Debts recovered -> Gain A/c -> income A/c -> increase in income -> Credit

The journal entry for the transaction is the following:

Bad debts recovered journal entry  - What are Bad debts recovered | Example | Journal Entry

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T.S. Grewals Double Entry Book Keeping - What are Bad debts recovered | Example | Journal Entry

T.S. Grewal’s Double Entry Book Keeping

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