During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a:

Question

Heather Tate

Business

1 October, 10:10

During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a:

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Guadalupe Donovan · Answer 1

Debit Bad debt expense $1 million

Credit Account receivables $1 million

Explanation:

When items are sold on account, the required entries are debit to account receivables, credit to revenue. If that the end of the year, $5 million remain due from customers, it means that this is the account receivable at the end of the year. As such, If the company estimates that 20% of the total year-end accounts receivable will not be collected, it means that 20% of the receivable has gone bad.

Amount gone bad = 20% of $5 million = $1 million

Required entries for this are;

Debit Bad debt expense $1 million

Credit Account receivables $1 million

Being entries to recognize bad debt