Which of the following statements is true with respect to the percentage-of-credit-sales method for estimating uncollectible accounts?

Question

Quizplus · Accepted Answer

The amount recorded for bad debt expense under the percentage-of-credit-sales method is based on a percentage of credit sales for the period and is not dependent on the balance of the allowance for uncollectible accounts. The balance of the allowance account is adjusted separately based on estimates of future uncollectible accounts. Therefore, statement A is correct. Statements B, C, and D are incorrect. The percentage-of-credit-sales method is an income statement approach, not a balance sheet approach. It allows for future uncollectible accounts, as the estimate of bad debt expense includes an amount for anticipated future losses. Bad debt expense is recorded in the period of the sale, not at the time of an actual bad debt.

Which of the Following Statements Is True with Respect to the Percentage-Of-Credit-Sales