[lss0724]

We received $50,000 in capital assets in lieu of paying old invoices totaling $16,000 by a customer. If I CR sales and DR Bad Debts for the $16,000 to clear the old invoices on the books and then DR Assets for the $50,000 what would be the offsetting CR entry?

[CaptainForest]

What was done in the past/time of sale
Dr. AR 16,000
Cr. Sales 16,000

What you should do now:
There is no reason to touch Bad Debts, since this is not a bad debt.

They are paying off their liability, but instead of giving you cash, they are giving you an asset.

You say the fair market value of these assets are 25,000, but if that was truly the case, why do they not just sell it themselves and give you 16,000?

The JE to you would be:
Dr. Capital Assets 16,000
Cr. AR 16,000

I am assuming these capital assets are something like a computer or something.

The value recorded to you is only 16,000 (unless the extra 9,000 is a specific interest charge as stated in the contract)


If I was to sell you a computer for $5,000, but it was really worth $7,000, how would you record that?

You would
Dr. Computer 5,000
Cr. Cash 5,000

because the cost base to you is only $5,000, despite if it is “really” worth $7,000.

Same principles in your case as well.