Final answer:
To create journal entries for bad debts and bad debts recovered, you debit Bad Debts Expense and credit Accounts Receivable for the bad debt, and debit Cash and credit Bad Debts Recovered for the recovered amount.
Step-by-step explanation:
The student's question pertains to the creation of journal entries for bad debts and bad debts recovered. In accounting, when an account receivable is declared a bad debt, it is written off as an expense. However, if cash is received for a previously written-off bad debt, it is recorded as a recovery. The journal entries for these transactions would be:
- For the bad debt:
Dr. Bad Debts Expense Rs. 3,500
Cr. Accounts Receivable - Saroj Rs. 3,500 - For the bad debt recovery:
Dr. Cash Rs. 1,500
Cr. Bad Debts Recovered Rs. 1,500
The first entry recognizes the bad debt as an expense, decreasing the accounts receivable. The second entry reflects the unexpected cash inflow from the recovery of the bad debt, which is recorded as income.