Question

What is the double entry required to record the receipt of £750 from a bad debt previously allowed for within the accounts?

Answer 1

The receipt of £750 from a bad debt previously written off requires a debit to the Cash/Bank account and a credit to the Allowance for Doubtful Accounts. If the recovery is more than the original bad debt amount, the excess should be credited to the Profit and Loss Account.

Step-by-step explanation:

The double entry required to record the receipt of £750 from a bad debt previously allowed for within the accounts would be a debit to the Cash/Bank account and a credit to the Allowance for Doubtful Accounts. If the entire amount of bad debt is being recovered, this entry effectively reverses the previous provision made for the bad debt.

However, if the provision was for a larger amount, only part of the provision is reversed, and an additional entry crediting the Profit and Loss Account (or Bad Debts Recovered Account) would be needed for any excess over the original bad debt amount.

Journal Entries:

1. Debit Cash/Bank: £750 (To record the cash received)
2. Credit Allowance for Doubtful Accounts: £750 (To reverse the previous allowance for bad debt)

In the case of excess recovery:

1. Debit Cash/Bank: £750 (To record the cash received)
2. Credit Allowance for Doubtful Accounts: up to the original bad debt amount
3. Credit Profit and Loss Account: the excess over the bad debt amount (To record the recovery of bad debts)