What is the entry for the recovery of a debt previously written off?

What is the entry for the recovery of a debt previously written off?

• A. Dr Bank, Cr Irrecoverable debt (Receivable)
• B. Dr Irrecoverable debt, Cr Receivables (Reinstate the receivable)
• C. Dr Receivables, Cr Bank (Cash received)
• D. Dr Cash, Cr Irrecoverable debt (Servicing debts)

Answer: (B)

The correct entry for the recovery of a debt that was previously written off involves reinstating the receivable in the accounts. When a debt is written off, it is removed from receivables and typically recorded as an irrecoverable debt. Upon recovery of this amount, the business needs to reverse the original write-off by reinstating the receivable. This process involves debiting the irrecoverable debt account, which effectively acknowledges that the debt is no longer considered an expense or loss, and crediting the receivables account to indicate that the amount is once again owed to the business. This reinstatement ensures that the receivable is accurately reflected in the financial statements. After the receivable has been reinstated, when the cash is actually received from the debtor, another entry would be made to reflect the cash transaction by debiting the bank and crediting the receivables. However, in the context of the question, the focus is solely on the initial recovery of the previously written-off debt, which is why reinstating the receivable properly captures the recovery process.

The correct entry for the recovery of a debt that was previously written off involves reinstating the receivable in the accounts. When a debt is written off, it is removed from receivables and typically recorded as an irrecoverable debt. Upon recovery of this amount, the business needs to reverse the original write-off by reinstating the receivable.

This process involves debiting the irrecoverable debt account, which effectively acknowledges that the debt is no longer considered an expense or loss, and crediting the receivables account to indicate that the amount is once again owed to the business. This reinstatement ensures that the receivable is accurately reflected in the financial statements.

After the receivable has been reinstated, when the cash is actually received from the debtor, another entry would be made to reflect the cash transaction by debiting the bank and crediting the receivables. However, in the context of the question, the focus is solely on the initial recovery of the previously written-off debt, which is why reinstating the receivable properly captures the recovery process.