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Difficulty: EasyBad Debts Written Off and Bad Debts Recovered

Kofi Traders recovered a debt of ₦25,000\text{₦}25,000 that had previously been written off as irrecoverable in a prior financial period. What is the correct accounting entry required to reinstate the debtor's account before recording the receipt of cash?

  1. Debit Debtor's Account and Credit Bad Debts Recovered AccountAnswer
  2. B
    Credit Debtor's Account and Debit Bad Debts Recovered Account
  3. C
    Debit Cash Account and Credit Bad Debts Account
  4. D
    Debit Provision for Doubtful Debts Account and Credit Debtor's Account

Answer

Debit the Debtor's Account and Credit the Bad Debts Recovered Account
When a debt previously written off is recovered, standard double-entry bookkeeping requires reinstating the debtor's personal account first by debiting the Debtor's Account and crediting the Bad Debts Recovered Account. Afterwards, the settlement is recorded by debiting Cash/Bank and crediting the Debtor's Account.

Step-by-Step Solution

1
Identify the two stages of bad debts recovered.
Stage 1 reinstates the debtor's account; Stage 2 records the cash received.
Reinstating the account provides a complete historical record in the debtor's ledger.
2
Determine the debit and credit entry for reinstating the account.
Debit Debtor's Account, Credit Bad Debts Recovered Account.
Debiting the debtor restores their asset/receivable balance, while crediting bad debts recovered recognizes income.

Key Concept

Accounting Treatment of Bad Debts Recovered
Estimated Time:45s
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Topics

Bad Debts Written Off and Bad Debts Recovered

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