PRC-1 · Chapter 5 · Question 57 of 100
An irrecoverable debt of Rs. 5,000 that was formally written off in the previous year is unexpectedly paid by the customer via cheque. What is the correct double-entry for this transaction?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Bank Rs. 5,000; Credit Bad Debts Recovered (Income/Expense) Rs. 5,000
Explanation
Since the debt was already written off, the customer's receivable balance is zero. The cash received increases the bank balance and is recorded directly as income (or a reduction of bad debt expense) called Bad Debts Recovered.
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