Bad Debt Recovery

Bad Debt RecoveryTax Law Term “Bad Debt Recovery

A deduction is generally allowed for any business debt which becomes worthless within the taxable year. Bad debt recovery denotes recovery of a previous bad debt deduction. In general, the taxpayer must include part or all of the recovered amounts in income in the year the recovery is received.

Bad debt recovery represents different loans and delinquent payments, deriving from past-due consumer and commercial debts. Bad debts are usually connected with a loss, when they are marked as written-off in creditor’s system. Logically, debt recovery is marked as a positive income, and increase of cash flow in lender’s organisation.

A bad debt recovery is a payment received after it has been designated as uncollectible. This may occur after legal action has been taken to recover a receivable, as a partial payment from a bankruptcy administrator, or some similar situation. It could also arise simply because an invoice was written off too soon, before all possible collection alternatives had been explored. AccountingTools

A bad debt recovery is business 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. Investopedia

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