Bad Debt Recoveries

In a few rare cases, you might have a customer pay his debt after you've given up on it and written it off. It happens. If it does, you'll have to make some general journal entries to reflect the payment. Hey, there are worse things that could happen than having to account for the fact that someone unexpectedly gave you money.

For example, say that on December 31 you had written off Roderick Spode's $50 account as uncollectable. Suppose that good old Roderick comes into some money and decides to pay you off in full on January 20. Your journal entries might look like this:


Debit Credit
Jan. 20 Accounts Receivable-Roderick Spode 50.00

Allowance for Doubtful Accounts
To reinstate the account of Roderick Spode written off on May 2.
Jan. 20 Cash 50.00

Accounts Receivable-Roderick Spode

These entries have the effect of increasing your cash accounts by $50 and decreasing your allowance for doubtful accounts by the same amount.

What if the customer were to pay only part of what he owed? What if he paid only $25? If that happens, you have a judgment call to make. If you believe he will pay all of it back, you may want to go ahead and make the accounting entries as if he had paid the amount in full. If you do not believe he will pay it all back, you should make entries to reflect only that he has paid you $25.