Question

XY merchandising uses the allowance method to account for uncollectible accounts. They have a debit balance of $150,000 in the account receivable account and a $500 credit balance in the allowance account prior to making an estimate at the end of 2009. they estimate that 2% of the receivable will not be collected. Prepare the adjusting entry XY merchandising should make on 12/31/2018.

Answer 1

Notes: 1
Direct Write Off Method : In this method we can directly debit the bad debt and expenses and credited to account receivable account
Provisional Method: This is also called allowance method. In this method we can debit the all expected to be uncollected in bad debt expenses
	and credited to allowance for doubtfull account. Once uncollectable amount confirmed from customer than we can
	debite to allowance account and crdit to account receivable account
In this quistion provssional method is asked
Notes: 2	CALCULATION OF BAD DEBT EXPENSES ON THE BASIS OF % OF ACCOUNT RECEIVABLE
	Account Receivable	$                 1,50,000
	Estimated that 2% of $ 150,000 will be uncollectable	$                       3,000
	Less: Balance available in Allowance account	$                          500
	Net balance need to take adjusted as on 12/31/2018	$                       2,500
Solution:
Date	Particulars	Debit	Credit
Oct, 01	Bad Debts Expenses account	$2,500
	Allowance for Doubtful Debts		$2,500
	(Adjusting entry of bad debt for the period ended 12/31/2018)