Q: What is the double entry of recording recovery of bad debts in control accounts?
A: First of all, bad debts are debts owed to the business that have gone bad. In other words, you don't think Joe Shmoe is going to pay you the $1,000 he owes you as he just declared bankruptcy or something like that.
When this situation occurs you record this debt that won't be paid as a loss, and we call this bad debts:
Dr Bad Debts $1,000 Cr Debtors Control $1,000
Note that the credit here is for the debtors account. What this means is that our debtors are less, which makes sense as we are not expecting as much money to be received in future anymore.
Now let's say that 2 years later Joe Shmoe's new business is doing well and he has money again and he is forced to pay you some of the money he owed you before (let's say $600). The money he pays you is now recorded as an income and we use the term bad debts recovered.
Here's the journal entry:
Dr Bank $600 Cr Bad debts recovered (income) $600
As you can see, the entry above actually does not affect the debtors control account at all. It is simply a simple recording of income and cash in one entry.
Hope that makes sense!
FYI I don't provide full lessons, examples and exercises regarding bad debts (and provision for bad debts) on this site. This is only available in my basic accounting books.
Best, Michael Celender
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