Institute of Certified Bookkeepers
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How to recored a receipt from a bad debt

  • 1 post
  • # 70985

We have a customer that we would like to right off as a bad debt BUT there is still a possiblity that some money may be received once the administrators have sorted things out.
If we have made the customer a 'BAD DEBT' and we receive some payment how does this get recorded.

  • Fellow in Practice
  • Practice Certificate
  • 455 posts
  • # 71025

> Hi Step 1 is to always write off the whole debt asap - this is the way you get the tax deduction for the bas debt
if you hold off any only write off part fo the debt, in many circumstances, you DO NOT get a tax deduction for the amount you DONT receive because it is deemed you have "Settled" for the lesser amount.

step 2: any receipt that comes in later is income of "Bad Debt recovered" income etc

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  • 15 posts
  • # 119138

To record the bad debt expenses, you must debit bad debt expense and a credit allowance for doubtful accounts. With the write-off method, there is no contra asset account to record bad debt expenses. Therefore, the entire balance in accounts receivable will be reported as a current asset on the balance sheet.

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