Recovery of Bad Debts

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on February 21, 2023

Occasionally, a business may find that an amount it had previously written off as bad debt is received at a later date. The receipt of such an amount is called the recovery of bad debts.

Clearly, the amount cannot be credited to the personal account of the debtor because that account was closed down when the amount due from that debtor was written off as bad debt.

The entry to record bad debt recovery would, therefore, be as follows:

  • Dr: Cash (or bank) A/c with the amount recovered
  • Cr.: Bad debts recovery A/c with the same amount

After this entry, the bad debts recovery account will show a credit balance at the end of the financial year and will be transferred to the credit side of the profit and loss account as an item of income.


John has learned that David, who owed him $960, has passed away and left no estate behind. John decides to write off this amount as a bad debt.

Task 1: Show the journal entry.

Three months later, David's family member visits John to pay off the amount due.

Task 2: Show the bad debts recovered journal entry.

Bad Debts Recovered Journal Entry

Recovery of Bad Debts FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.