Recovery of Bad Debt

Bad debts are those debts that are considered irrecoverable and are written off by the business. However, in some cases, bad debts may be recovered unexpectedly. In such a scenario, the following steps need to be taken:

1. Identify the amount recovered: The first step is to identify the amount that has been recovered. In this case, an amount of ₹2000 has been recovered from Mahesh Chand.

2. Reverse the write-off: The next step is to reverse the write-off that was done in the previous year. This means that the bad debt that was written off needs to be added back to the accounts.

3. Post the recovery: The amount that has been recovered needs to be posted to the personal account of Mahesh Chand. This will reflect that the amount has been received from him.

4. Adjust the accounts: The accounts need to be adjusted to reflect the recovery of the bad debt. This includes updating the balance sheet and income statement.

5. Accounting treatment: The accounting treatment for the recovery of bad debt is as follows:

- Debit the bad debt recovered account with the amount recovered (₹2000 in this case)
- Credit the personal account of Mahesh Chand with the same amount
- Reverse the write-off by debiting the bad debt written off account and crediting the bad debt recovered account

Conclusion

In conclusion, the recovery of a bad debt requires a specific accounting treatment to ensure that the accounts are updated correctly. It is important to identify the amount recovered, reverse the write-off, post the recovery, adjust the accounts, and apply the correct accounting treatment.

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