Question

Statement I: The percentage of sales method focuses on the income statement. Statement II: Under the...

Statement I:

The percentage of sales method focuses on the income statement.

Statement II:

Under the percentage of sales method, the firm looks at the historical amount of bad debts as a percentage of net credit sales.

Both statements are incorrect
Statement 1 is incorrect; statement 2 is correct
Statement 1 is correct; statement 2 is incorrect
Both statements are correct
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Answer #1

Both statements are correct.

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The percentage of sales method is calculated as estimated uncollectible accounts to net credit sales. Here, estimation of uncollectible accounts and net credit sales are based on the income statement, that’s why this method called as income statement approach.

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