Bad Debt Accounting

Bad Debt Accounting:

Bad debt is that part of receivable that company would not be able to receive or recover from the customer. The following are the main reason for bad debt

a)    Solvency of Debtor.

b)   Death of Debtor (Debtor left over asset are not sufficient to recover debt).

c)    Dispute with the customer (Damaged Goods).

d)   Fraud Customer.

Accounting for Bad Debt:

Bad debt is treated as operational expenditure of the company and amount of bad debt is deducted from the receivable. Thus bad debt is debited being expense, and receivables are credited being reduction in asset.

Journal entry for the Bad debt would be as follow

Date	Particulars	Dr	Cr
	Bad Debt (P&L) A/c	5,000
	Receivable A/c		5,000

Bad Debt Recovery Accounting:

There is always a possibility that customer would pay its debt liability, that was previously written off by the company. In such cases the recovered amount is charged as income in the period of recovery. 

In case the amount written down above is recover in next period, then journal entry for such recovery would be as under

Cash is debited being increase in asset, and profit & loss account is credited treating the recover as income.

Date	Particulars	Dr	Cr
	Cash A/c	5,000
	Profit & Loss A/c		5,000