So, it needs to reinstate back the customer’s account. The first journal entry that is made to reverse the entry that the company made when writing off the receivable of the customer’s account shows that the company made an error judgment when it wrote off accounts receivable. Account Debit Credit Cash 000 Accounts receivable 000 Account Debit Credit Accounts receivable 000 Allowance for doubtful accounts 000Īfter that, the company can make the second journal entry for the cash received from the customer for the recovery of the bad debt by debiting the cash account and crediting the accounts receivable. When the company receives the cash payment from the customer’s account that had been written off, it needs to make two journal entries for the bad debt recovery.įirst, the company can make the journal entry for bad debt recovery by debiting the accounts receivable and crediting the allowance for doubtful accounts to reverse the entry that the company has previously made when writing off the customer’s account. Hence, it needs to correct its mistake by reinstating the customer’s account back to the balance sheet before removing it in form of the receivable collection from the customer which is different from removing it in form of written off that the company has previously done. Receiving the cash from the previously written off receivable shows that the company makes an error in judgment to write off the account receivable in the first place. For example, recognizing the cash received in this case as other revenues or similar items will go against the rule of accounting. In this case, it is important to properly account for the cash received as a recovery of bad debt instead of other events, such as revenue. However, it may later receive the cash from that written-off account. The company usually writes off the receivable of a customer’s account when it is deemed to be bad debt and is clear that such an account will not be able to be collected. In this case, the company needs to make the journal entry for bad debt recovery for the cash received by restating back the customer’s receivable account and account for the cash received the same way as accounts receivable collection. Sometimes, the company may receive the cash payment from the customer’s account that has previously been written off and removed from the balance sheet.
Accounting for Bad Debt Recovery Overview