At times a debtor whose account had earlier been written off by a creditor as a bad debt may decide to make a payment, this is called recovery of bad debts. While posting the journal entry for recovery of bad debts it is important to note that it is treated as a gain to the business & that the debtor should not be credited as in case of sales. While journalizing for bad debts, debtor’s personal account is credited and bad debts account is debited because bad debts written off are treated as a loss to the business and now when they are recovered it is seen as a fresh gain. Journal entry for recovery of bad debts is as follows;

Cash or Bank A/C	Debit	Real A/C	Dr. What comes in
To Bad Debts Recovered A/C	Credit	Nominal A/C	Cr. income & gains

Debit (Cash or Bank) depending on how the money is received Rules applied as per modern or US style of accounting 

Cash/Bank A/c	Debit the increase in assets
Bad Debts Recovered A/c	Credit the increase in income

The closing journal entry for bad debts recovered would be as follows;

Bad Debts Recovered A/C	Debit
To Profit and Loss A/C	Credit

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