Assuming a manufacturer, Black Mamba Company who possess large amount regular clients ( debtors), who bought on credit term. Nonetheless, a single from the client, stated XYZ Company has long outstanding debt resulting from Black Mamba Company. The outstanding position is substantially longer than business average. Therefore, the Black Mamba Company tends to make a provision of doubtful debt for the amount due for that outstanding debt due from XYZ Company.:
Debit: Bad Debt Expense
Credit: Provision for Doubtful Debt
As a result of unexpected cash in flow to XYZ Company, and XYZ Company. pay back off the debt as a result of Black Mamba Company; therefore, in XYZ accounting book, they might reverse the provision made.
Debit: Provision for Doubtful Debt
Credit: Bad Debt Recovered (P&L)
