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Ch(3) : Accounting for Receivable66This basisof estimatinguncollectibleemphasizes the matching of expenses with revenues. As a result, bad debts expense will show a direct percentage relationship to the sales base on which it is computed. When the company makes the adjusting entry, it disregards the existing balance allowance for doubtful accounts. The adjusted balance in this account should be a reasonable approximation of the realizable value of the receivables. If actual write-offs differ significantly from the amountestimated, the company should modify the percentage for futur years.Illustration 3-3:Abdulla Companyhas credit sales of BD500,000 in 2018. Of this amount,BD100,000 remains uncollectibleand credit balance ofallowance for doubtful accounts BD20,000 at Dec,31 2018. The manager estimated that 10% of the credit sales will be uncollectible. On Jan,15 2019, Customer Ahmedwasbankrupt and the company wrote off BD2700 his balance to be uncollectible. On Jan,31 2019, Ahmed has increasing sales in his business and paid his balance due.Journal Entries are:DateExplanationDebitCreditDec,312018Bad Debts Expense(500,000%u00d710%)50,000Allowance for Doubtful Accounts50,000Jan,152019Allowance for Doubtful Accounts2,700Account Receivable2,700Jan,312019Account Receivable2,700Allowance for Doubtful Accounts2,700Jan,312019Cash2,700Account Receivable2,700Objective (2)Explain how companies prepare journal entry to recovering bad debts.