Bad debt recovered

What it means

Cash received in settlement of a trade receivable that was previously written off, treated as income in the period of recovery.

Example

A debt of RM600 written off last year is unexpectedly paid; the RM600 is recorded as income now.

Why it matters

It is shown as separate income, so profit is not understated in the year the cash arrives.

In practice

A bad debt recovered is shown as income in the income statement, usually listed alongside other gains. It is not netted against the current year's bad debts expense. The bookkeeping has two steps. First the recovered amount is recorded through the customer's account and the bank. Then it is transferred to a bad debts recovered account and closed to the credit of the income statement.

For example, a debt of RM400 written off last year is unexpectedly paid. The RM400 now appears as income and lifts this year's profit. The original write-off reduced an earlier year's profit, so recording the recovery as income keeps each year's result fair.

Students often confuse it with the provision for doubtful debts. A recovery is real cash received on a debt already removed from the books. A provision is only an estimate of debts that might not be paid, and no money has changed hands.

If bad debts, recoveries and provisions run together in your answers, one of our teachers can set each one out with you in a single worked example. Book a trial class.

Related terms

• Irrecoverable debt
• Trade receivable
• Income statement

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.4 Irrecoverable debts and allowance for irrecoverable debts (page 15).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.