Cotchin Ltd had accounts receivable at 30 June 2016 totaling $76,100 Dr

Under the allowance method, the baddebts expenses are shown at the time of making the provisions and not when the actual writeoff is there, the provision is made on a basis of either as a percentage of accounts receivable or as a percentage to sales. When the provision is made the baddebts expenses /uncollectible accounts expenses debited and the allowance for doubtful debts is credited. and when the actual writeoff is there the allowance for uncollectible accounts is Debited and the accounts receivable is credited.

In the given case, accounts receivable balance before writeoff adjustment = $ 76,100 and the accountant has decided to increase the allowance for doubtful debts to 2% of adjusted accounts receivable after writing off $3,100 in uncollectable accounts.

Here the accounts balance after write off = Existing - writeoff = $ 2310 - 3100 =  790 .debit balance

This balance should be kept at 2% of adjusted accounts receivable after writing off $3,100 in uncollectable accounts.

Thus adjusted accounts receivable = $ 76100 - 3100 = 73,000.

Thus allowance for doubtful debts balance required = $73000 * 2% = $ 1,460. credit balance required

Here the required balance is $ 1460 but balance is negative - 790 , so we need to provide the baddebts expenses of $ 2250 ( 790 + 1460 ) so as to get the balance required for allowance for doubtful debts. ( since it is -790 so first will reverse this, then additional required = 1460 so total credit to be made = $ 2250).

So there will be two journal entries one will be for writeoff and another will be for the allowance provision: