Treatment of bad debts recovered in cash flow statement ?
Treatment of Bad Debts Recovered in Cash Flow Statement
Bad debts refer to the amounts owed to a business by its customers that are unlikely to be repaid. When such debts are recovered, they are considered as cash inflows in the cash flow statement. The treatment of bad debts recovered in the cash flow statement is as follows:
1. Operating Activities
Bad debts recovered are considered as operating cash inflows in the cash flow statement. They are included in the operating activities section of the cash flow statement as they relate to the primary activities of the business.
2. Direct Method
If the direct method is used to prepare the cash flow statement, bad debts recovered are shown as a separate line item in the operating activities section. The amount recovered is added to the net cash provided by operating activities to arrive at the total cash inflow from operating activities.
3. Indirect Method
If the indirect method is used to prepare the cash flow statement, bad debts recovered are added back to the net income in the operating activities section. This adjustment is made because bad debts are considered as an expense in the income statement, and their recovery is not reflected in the net income. The adjustment results in an increase in the net cash provided by operating activities.
Conclusion
In conclusion, bad debts recovered are treated as cash inflows in the cash flow statement and included in the operating activities section. The treatment of bad debts recovered depends on the method used to prepare the cash flow statement. If the direct method is used, bad debts recovered are shown as a separate line item, while in the indirect method, they are added back to the net income.
Treatment of bad debts recovered in cash flow statement ?
It's not in the cash flow statement as it's not a flow of cash. It's just an accounting entry but there is no cash involved in the transaction. So it's in the income statement but not in the cash flow statement.