Bad Debt Recovery

AAA

DEFINITION of 'Bad Debt Recovery'

A debt from a loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income.

In accounting, the bad debt recovery would credit the "allowance for bad debts" or "bad debt reserve" categories, and reduce the "accounts receivable" category in the books.

INVESTOPEDIA EXPLAINS 'Bad Debt Recovery'

Not all bad debt recoveries are "like-kind" recoveries. For example, a collateralized loan that has been written off may be partially recovered through sale of the collateral. Or, a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit.

RELATED TERMS
  1. Debt Buyer

    A company that purchases debt from creditors at a discount. Debt ...
  2. Debt Collector

    A company or agency that is in the business of recovering money ...
  3. Non-Recourse Sale

    A transaction in which a creditor turns a bad debt over to a ...
  4. Debt Cancellation Contract

    A contract in which a bank agrees to cancel all or part of a ...
  5. Bad Debt

    A debt that is not collectible and therefore worthless to the ...
  6. Charge-Off

    A term describing an expense on a company's income statement. ...
RELATED FAQS
  1. What happens if a company doesn't think it will collect on some of its receivables?

    The accounts receivable account, or receivables for short, is created when a company extends credit to a customer based on ... Read Full Answer >>
  2. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  3. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  5. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
  6. What are some of the advantages and disadvantages of absorption costing?

    Companies must choose between using absorption costing or variable costing in their accounting systems. There are advantages ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Protecting Your Financial Documents From Disaster

    Organizing and updating your records regularly can save you a lot of grief in a time of crisis.
  2. Bonds & Fixed Income

    Unpredictable Event Or Bad Investment?

    When investments head south, your 20/20 hindsight can show you who's at fault.
  3. Investing

    What is Comprehensive Income?

    Comprehensive income is a part of the owners’ equity section of the balance sheet.
  4. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  5. Economics

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  6. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.
  7. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  8. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  9. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  10. Fundamental Analysis

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center