Final answer:
The percentage-of-sales method is one way to value receivables on the balance sheet, but it may not always be more accurate than other methods such as aging of receivables.
Step-by-step explanation:
The percentage-of-sales method is one way to value receivables on the balance sheet. It calculates the estimated value of accounts receivable by multiplying the total sales for a period by a predetermined percentage. This method assumes that a certain percentage of sales will result in accounts receivable.
This method can provide an approximation of the value of receivables but may not always be more accurate. It is important to consider other factors such as the creditworthiness of customers and the payment terms. For example, if a company has customers with a history of late payments, the percentage-of-sales method may not accurately reflect the true value of receivables.
Another method commonly used is the aging of receivables method, which categorizes outstanding receivables based on their age. This method takes into account the likelihood of collecting payment based on the length of time the receivables have been outstanding. It provides a more detailed analysis of the value of receivables and is often considered more accurate than the percentage-of-sales method.