Bad debt realisation - accounting treatment

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Sayanth Sasidharan (Querist)
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21 April 2013 An Invoice raised in FY 12 for $100 was written off as bad debt in FY 13 (say on 31st March 2013). Subsequently the client pays this $100 in FY 14 (say on 2nd April 2014) not knowing that it was w/off as bad debt. Please explain the treatment of this $ 100 received in the light of relevant Guidance Notes. Whether it should be treated as Advance for Future Sales or a new Invoice need to be raised for the equivalent amount?

Rashid Mehmood

Rashid Mehmood (Expert)
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22 April 2013 Dear Sayanth

this is neither advance nor the new invoice is required. first you have booked the bad debts now make a reversal and treat this receipt as income. it can be identified by preparing the customer's account reconciliation. if you are not practising the customer account reconciliation then start it from now for future use.