How To Account For Bad Debt Recovery. Effective accounting goes a long way, so make sure you invoice promptly, state your terms clearly, and follow up on. This means creating a debit to the accounts receivable asset account in the amount of the recovery, with the offsetting credit to the allowance for doubtful accounts contra asset account.
To make a journal entry for the allowance of doubtful accounts, there needs to be a credit and a debit. Now, if the amount of bad debt is received in any succeeding year, the same will be credited to profit and loss of that year as an income. The event of bad debts must be recorded in the accrual accounting system.
