USA Buying Bad Debt from another Co.

[calvinshyne]

My company is determining if they will buy another company's bad debt 5 cents on the dollar. I am trying to determine what the accounting treatment is for not only the purchase of the bad debt but what about if we recover it which of course would be a larger amount. Looking for some JE's
thanks

 

[bklynboy]

On purchase its Debit Asset (Receivables) and credit Cash. When recovered reduce the receivable (credit) debit cash and debit/credit gain or loss for difference. Note that you will likely also set up a valuation allowance for amounts uncollectible (Bad Debt Expense) and this would be adjusted over time based on actual collections made.