Recovering a Previously Written-Off Receivable

Why a Written-Off Receivable May Reappear

A customer balance can be written off as uncollectible and later be paid, in whole or in part. Under the allowance method, the original write-off removed the balance from accounts receivable and reduced the allowance for uncollectible accounts. If the customer later pays, the accounting records must show both that the receivable has been restored and that cash has been collected.

The key is to keep those two events separate. Reinstatement puts the customer balance back into accounts receivable; collection records the receipt of cash and removes the amount paid from accounts receivable. The recovery does not create new sales revenue: the original credit sale was recorded before the write-off.

Definition: A recovery of a previously written-off receivable occurs when a customer pays some or all of a balance that was previously removed from accounts receivable. Under the allowance method, first reinstate the amount being recovered by debiting Accounts Receivable and crediting Allowance for Uncollectible Accounts. Then record the collection by debiting Cash and crediting Accounts Receivable. If only part of the written-off balance is recovered, reinstate only the recovered amount unless a larger amount is now collectible and is being recognized.

The Two Entries and Why They Work

Assume the company uses the allowance method, the customer’s payment relates to a valid prior credit sale, and no interest, fees, or taxes are involved. The original write-off under this method was:

\text{Debit Allowance for Uncollectible Accounts} \qquad \text{Credit Accounts Receivable}

The write-off reduced both gross accounts receivable and the credit balance in the allowance by the same amount. When the balance is recovered, reversing the write-off restores the receivable and restores the allowance by equal amounts. Only after that reversal is the receipt of cash recorded.

\begin{aligned} \text{Reinstate:}&\quad \text{Debit Accounts Receivable},\quad \text{Credit Allowance for Uncollectible Accounts} \\ \text{Collect:}&\quad \text{Debit Cash},\quad \text{Credit Accounts Receivable} \end{aligned}

This sequence follows from the original write-off. The reinstatement is its exact reversal for the amount recovered; the collection then records the exchange of one asset, accounts receivable, for another asset, cash. Thus, reinstatement alone does not change net receivables, and collection alone does not change total assets. Neither entry affects revenue or bad debt expense.

Identify the amount being recovered.
Determine whether the customer is paying the full written-off balance or only a portion. Do not reinstate an amount that remains uncollectible and is not being recognized as collectible.

Reverse the write-off for that amount.
Debit Accounts Receivable and credit Allowance for Uncollectible Accounts. This restores the customer balance to the ledger.

Record the cash receipt.
Debit Cash and credit Accounts Receivable for the amount actually received. If the customer will pay the rest later, that unpaid amount remains in Accounts Receivable.

The account balances help explain why two entries are needed. Reinstatement raises gross accounts receivable and the allowance by equal amounts, leaving net receivables unchanged. Collection raises cash and lowers accounts receivable by the cash received. The balance sheet therefore shows the right asset form after each event.

Worked Applications

Worked Example: Full Recovery and Immediate Collection

A customer’s $840 balance was written off earlier under the allowance method. Immediately before recovery, the company has gross Accounts Receivable of $17,760, a credit balance of $1,250 in Allowance for Uncollectible Accounts, and Cash of $9,400. The customer now pays the full $840. Record the entries and calculate the affected ending balances.

Method. Reverse the earlier write-off for $840, then record the full cash receipt for $840.

Reinstatement. Debit Accounts Receivable $840 and credit Allowance for Uncollectible Accounts $840. Gross Accounts Receivable becomes $17,760 + $840 = $18,600. The allowance credit balance becomes $1,250 + $840 = $2,090. Cash remains $9,400 at this step.

Collection. Debit Cash $840 and credit Accounts Receivable $840. Cash becomes $9,400 + $840 = $10,240. Gross Accounts Receivable becomes $18,600 - $840 = $17,760. The allowance remains a $2,090 credit.

Check. Before recovery, net receivables were $17,760 - $1,250 = $16,510. After reinstatement but before collection, they are $18,600 - $2,090 = $16,510, unchanged. After collection, net receivables are $17,760 - $2,090 = $15,670, a decrease of $840, while cash increased by $840. No revenue or expense is recorded.

Common mistake avoided. Crediting Accounts Receivable directly when cash arrives would leave no record that the written-off customer balance was restored and would skip the corresponding allowance credit. The two entries show both events.

Worked Example: Partial Recovery of a Written-Off Balance

A $1,360 customer balance was previously written off. The customer now remits $510, and the company concludes that the remaining $850 is still uncollectible. Before this recovery, gross Accounts Receivable is $24,500, Allowance for Uncollectible Accounts has a $1,780 credit balance, and Cash is $6,300. Record the recovery and determine the ending balances.

Method. Because only $510 is being recovered and the rest remains uncollectible, reinstate $510, not the full $1,360. Then record receipt of that $510.

Reinstatement. Debit Accounts Receivable $510 and credit Allowance for Uncollectible Accounts $510. Gross Accounts Receivable becomes $24,500 + $510 = $25,010. The allowance credit balance becomes $1,780 + $510 = $2,290.

Collection. Debit Cash $510 and credit Accounts Receivable $510. Cash becomes $6,300 + $510 = $6,810. Gross Accounts Receivable returns to $25,010 - $510 = $24,500. The allowance remains a $2,290 credit.

Check. The customer’s unrecovered $850 is not restored. Net receivables before the recovery were $24,500 - $1,780 = $22,720. After the reinstatement and collection, net receivables are $24,500 - $2,290 = $22,210, which is $510 lower. Cash is $510 higher. The sum of cash and net receivables is unchanged by the collection itself: the $510 decrease in net receivables is matched by a $510 increase in cash.

Common mistake avoided. Reinstating the entire $1,360 would recognize the remaining $850 in Accounts Receivable even though the facts say it is still uncollectible. The recovery entries cover only the amount recovered here.

Worked Example: Reinstatement Before a Partial Payment

A $2,400 receivable was written off. The company now determines that the customer can pay the full amount, but will pay $900 today and the remaining $1,500 next month. Before reinstatement, gross Accounts Receivable is $27,300, Allowance for Uncollectible Accounts has a $3,100 credit balance, and Cash is $12,000. Record today’s entries and calculate the ending balances after the $900 payment.

Method. Since the full $2,400 is now collectible, reinstate the full receivable. Record only the $900 actually received today; the remaining $1,500 stays in Accounts Receivable.

Reinstatement. Debit Accounts Receivable $2,400 and credit Allowance for Uncollectible Accounts $2,400. Gross Accounts Receivable becomes $27,300 + $2,400 = $29,700. The allowance credit balance becomes $3,100 + $2,400 = $5,500.

Collection today. Debit Cash $900 and credit Accounts Receivable $900. Cash becomes $12,000 + $900 = $12,900. Gross Accounts Receivable becomes $29,700 - $900 = $28,800. The remaining $1,500 due from this customer is still part of that balance. The allowance remains a $5,500 credit.

Check. Net receivables before reinstatement were $27,300 - $3,100 = $24,200. Immediately after reinstatement, before collection, they are $29,700 - $5,500 = $24,200. After collection, they are $28,800 - $5,500 = $23,300. The $900 decrease in net receivables is matched by the $900 increase in cash. The unpaid $1,500 is included in gross Accounts Receivable.

Common mistake avoided. Crediting Accounts Receivable for the full $2,400 when only $900 has been collected would erase the unpaid $1,500. The collection entry must equal the cash actually received; it is separate from the full reinstatement.

Common Errors and Their Corrections

The most reliable check is to ask what each entry represents: restoring the receivable, receiving cash, or recognizing income. A recovery under the allowance method involves the first two, not the third.

Recording only the cash entry. Debiting Cash and crediting Accounts Receivable does not restore a balance that was already removed from the ledger. Reinstate the amount first.
Recording a recovery as revenue. A recovery is not a new sale. The original sale was recorded earlier, so crediting Sales Revenue or a recovery-income account would misstate the current transaction.
Debiting Bad Debt Expense on reinstatement. The reinstatement reverses part or all of the earlier write-off; it is not a new estimate of an expense. Credit the allowance account.
Reinstating more than the amount now recoverable. If only part of a written-off balance is recovered and the rest remains uncollectible, reinstate only the recovered portion. If the full balance is collectible but only a partial payment has arrived, reinstate the full collectible balance and leave the unpaid portion in Accounts Receivable.
Combining reinstatement and collection mentally. Even when both entries are recorded on the same date, they represent different changes. Separate entries make it possible to check the allowance, receivable, and cash balances.

Key takeaway: Under the allowance method, restore a recovered written-off receivable with a debit to Accounts Receivable and a credit to Allowance for Uncollectible Accounts. Then record each cash receipt with a debit to Cash and a credit to Accounts Receivable. Reinstatement is not revenue, and the collection amount must match the cash actually received.

Check Your Understanding

For each problem, identify the recovery entries and track the requested balances. Assume the allowance method and no interest, fees, or taxes.

A $625 receivable written off earlier is paid in full. Before recovery, gross Accounts Receivable is $14,200 and the allowance has a $980 credit balance. Give the two entries and the ending gross receivable and allowance balances. (Answer: Dr Accounts Receivable $625, Cr Allowance $625; Dr Cash $625, Cr Accounts Receivable $625; ending gross Accounts Receivable $14,200 and allowance credit $1,605.)
A $1,800 written-off balance is partly recovered: the customer pays $700, and the remaining $1,100 is still uncollectible. Before recovery, gross Accounts Receivable is $21,500 and the allowance has a $2,100 credit balance. Give the entries and ending balances. (Answer: reinstate $700 and collect $700; ending gross Accounts Receivable $21,500 and allowance credit $2,800; no revenue or expense.)
A $960 balance was written off, but is now fully collectible. The customer pays $360 today and will pay $600 later. Before recovery, gross Accounts Receivable is $9,500 and the allowance has a $700 credit balance. Find the entries, ending gross Accounts Receivable, allowance, and the amount still due from the customer. (Answer: reinstate $960, then collect $360; ending gross Accounts Receivable $10,100, allowance credit $1,660, and customer balance still due $600.)
A customer’s $2,450 written-off balance is recovered only to the extent of a $1,900 payment; the remaining $550 is still uncollectible. Cash before receipt is $4,800. Give the entries, ending cash, and the net change in cash plus net receivables. (Answer: reinstate and collect $1,900; ending cash $6,700; cash increases $1,900 while net receivables decrease $1,900, so their combined change is $0.)
Two previously written-off balances are involved: $480 is paid in full, while $720 is now collectible but the customer pays only $300 today and owes $420 later. Before these events, gross Accounts Receivable is $18,000 and the allowance has a $1,250 credit balance. Give the entries and ending gross receivables and allowance balances. (Answer: reinstate a total of $1,200 and collect a total of $780; ending gross Accounts Receivable $18,420 and allowance credit $2,450.)

What You'll Learn