Monday, June 11, 2007

#2 Accounting Treatment for Bad Debt Recovered

Assuming a manufacturer, XYZ Ltd who has a number of regular customers ( debtors), who purchased on credit term. However, one of the customer, said ABC Co. has long outstanding debt due to XYZ Ltd. The outstanding position is significantly longer than industry average. Hence, the XYZ Ltd would make a provision of doubtful debt for the amount due for the outstanding debt due from ABC Co.:

Dr. Bad Debt Expense XXX
Cr. Provision for Doubtful Debt XXX

Due to unexpected cash in-flow to ABC Co, and ABC Co. pay off the debt due to XYZ Ltd; hence, in XYZ accounting book, they would reverse the provision made:

Dr. Provision for Doubtful Debt XXX
Cr. Bad Debt Recovered (P&L) XXX

1 comment:

Anonymous said...

What is the double entry for the cash effect of collecting on bad debts previously written off?