When the bad debt estimate is based on the assumption that the amount of bad debt is a function of the total sales made on credit,this method is known as
A)the direct writeoff method.
B)the percentage receivables method.
C)the percentage of credit sales method.
D)aging of accounts receivable method.

Question

Quizplus · Accepted Answer

The percentage of credit sales method estimates the amount of bad debt based on the assumption that a certain percentage of credit sales will result in bad debt. This method is commonly used by businesses to estimate their bad debt expense for a particular period, as it provides a simple and effective way to calculate the expected amount of bad debt. The other options, such as the direct write-off method, percentage receivables method, and aging of accounts receivable method, all have different methods of estimating bad debt, and are not based solely on the assumption that bad debt is a function of total sales made on credit.

When the Bad Debt Estimate Is Based on the Assumption