The accounting for a bad debt recovery is a two-step process, as follows:

• Reverse the original recordation of a bad debt. This means creating a debit to the accounts receivable asset account in the amount of the recovery, with the offsetting credit to the allowance for doubtful accounts contra asset account. If the original entry was instead a credit to accounts receivable and a debit to bad debt expense (the direct write-off method), then reverse this original entry.
• Record the cash receipt from the bad debt recovery, which is a debit to the cash account and a credit to the accounts receivable asset account.