Concept:Bad debt recovery is the receipt of money from a customer whose debt was previously written off as uncollectible. It is treated as a gain to the business.
Explanation:When the money is received, cash or bank account is debited because the asset is increasing.
Bad debts recovered account is credited because the recovery is an income or gain to the business.
The debtor’s account is not credited at this point because that account had already been closed when the bad debt was written off.
At the end of the accounting period, the credit balance in bad debts recovered account is transferred to the profit and loss account.
The closing entry therefore is: debit bad debts recovered account, credit profit and loss account.
Answer:Debit Cash/Bank Account and credit Bad Debts Recovered Account; later transfer by debiting Bad Debts Recovered Account and crediting Profit and Loss Account.