Received cash for a bad debt written off last year journal entry?

The debts that have a higher chance of not being paid are called doubtful debts. They are a part of the regular dealing of the company and may arise due to disputes or treachery on the part of debtors.

Bad debts refer to the doubtful debts that no longer seem to be recoverable from the business.

Written off means an expense, income, asset, liability is no more recorded in the books of accounts because they no longer hold relevance for the business.

When doubtful debts turn into bad debt, they are written off from the books after a stipulated time as they no longer seem recoverable.

If any cash is received against such bad debts that were written off, it is known as cash received against bad debts written off. Cash is received against bad debts usually when the debtor is declared insolvent and money is recovered from its estate.

Bad debts recovered are considered an income for the company as they were previously written off as a loss and any cash received against it is considered as income.

Journal entry for such situation is:

Cash or Bank A/c (Dr.)

To Bad Debts Recovered A/c

We debit the increase in assets, and since cash is coming into the business it is debited.

We credit the income, and since bad debts recovered is an income to the business it is credited.