A method of estimating bad debts that focuses on the income statement rather than the balance sheet is the allowance method based on:

Question

Quizplus · Accepted Answer

The allowance method based on a percentage of credit sales estimates bad debts by calculating a percentage of total credit sales for the period and recording it as an expense on the income statement. This method focuses on the income statement rather than the balance sheet because it estimates the expense of bad debts based on credit sales rather than the balance in the trade receivable accounts.

A Method of Estimating Bad Debts That Focuses on the Income