Complete the statement describing the standard double-entry accounting procedure required when a bad debt previously written off is subsequently recovered.
Answer:To properly record the recovery of a debt previously written off as irrecoverable, the customer's account is first reinstated by debiting the debtor's personal account and crediting the 【Bad Debts Recovered】 account. Next, the receipt of funds is recorded by debiting the cash or bank account and crediting the 【Debtor's】 account.
Answer
The first blank is 'Bad Debts Recovered' and the second blank is 'Debtor's' (or 'Trade Debtors').
When a debt previously written off is recovered, standard double-entry accounting mandates a two-stage entry: first, reinstate the debt by debiting the Debtor's Personal Account and crediting the Bad Debts Recovered Account; second, record payment by debiting Cash/Bank Account and crediting the Debtor's Personal Account.
Step-by-Step Solution
Key Concept
Accounting entry for bad debts recovered requires reinstating the debtor's account first before crediting the receipt of cash to the debtor's account.
Estimated Time:1m 30s