Which one of the following calculations is correct for the percentage of credit sales method?
A)Bad Debt Expense = Sales x historical %
B)Bad Debt Expense = Credit Sales x historical %
C)Bad Debt Expense x historical % = Allowance for Doubtful Accounts
D)Bad Debt Expense = Accounts Receivable x historical %

Question

Quizplus · Accepted Answer

The percentage of credit sales method estimates bad debt expense by taking a percentage of credit sales, which is more accurate than using total sales as it only accounts for the portion of sales that are on credit. Therefore, the correct calculation for estimating bad debt expense is to multiply credit sales by the historical percentage of credit sales that have historically been uncollectible.

Which One of the Following Calculations Is Correct for the Percentage