Three-step process: Recognition Entry, Write-off Entry, Recovery of Bad Debts

1. Jim Jams Co. sells $150,000 of merchandise to Wantex Co. on the account.

2. Jim Jams Co. estimates that 5% of the credit sales are uncollectable. (recognition entry)

3. The following period the estimate for the uncollectable accounts is confirmed and Jim Jams writes-off the estimate. (write-off entry)

4. Later, Wantex Co. pays $150,000 (their entire debt) to Jim Jams Co. (recovery entry).