Percent-of-Sales Method
Definition: Method of estimating bad debts by applying a historical percentage to total credit sales for the period. The result is recorded directly as bad deb…
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Method of estimating bad debts by applying a historical percentage to total credit sales for the period. The result is recorded directly as bad debt expense, focusing on income statement accuracy.
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Estimate from credit sales | ||
| $300,000 credit sales × 1.5% = $4,500. | ||
| Bad Debt Expense | $4,500 | |
| Allowance for Doubtful Accounts | $4,500 | |
| Income-statement approach; existing allowance balance ignored. | ||
Related Subjects
Related
- Allowance for Doubtful AccountsExpense is added to the allowance regardless of existing balance
- Allowance MethodThis is one specific approach within the allowance method
Contrast
- Percent-of-Receivables MethodReceivables method is balance-sheet; sales method is income-statement
- Aging-of-Receivables MethodAging is a balance-sheet approach using multiple rates
Produces
- Bad Debt ExpenseDirectly computes the expense amount from credit sales
External Links
- Bad debt#Allowance method — Wikipedia