Q2. XYZ Company, a retail business, is facing challenges with bad debts and wants to analyze the impact on its financial statements using the allowance method. Here are the relevant figures in Saudi riyals:

Total Credit Sales: 800,000 SAR

Beginning Allowance for Doubtful Accounts: 10,000 SAR

Bad Debts Written Off: 15,000 SAR

Ending Accounts Receivable: 120,000 SAR

Bad Debts % (Estimated): 3%

Question:

1. Calculate the bad debts expense for the period,
2. Determine the net realizable value (NRV) of accounts receivable,
3. Analyze the impact of bad debts on the financial statements, and provide recommendations to manage and reduce bad debts.