The income statement approach for estimating bad debts uses a percentage of

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The income statement approach estimates bad debts as a percentage of credit sales for the period. This method assumes that a certain percentage of credit sales will not be collected, based on past experience and industry standards. The resulting estimate is then recorded as an expense on the income statement, reducing the net income for the period. Using accounts receivable or allowance for uncollectible accounts would not accurately reflect the impact on the income statement.

The Income Statement Approach for Estimating Bad Debts Uses a Percentage