Final answer:
The statement is true. The percent of sales method for estimating bad debts assumes that a given percentage of a company's credit sales for the period will be uncollectible.
Step-by-step explanation:
The statement is true. The percent of sales method for estimating bad debts assumes that a given percentage of a company's credit sales for the period will be uncollectible. This method is commonly used in accounting to estimate the amount of bad debts that a company may experience.
The percentage used for estimating bad debts can vary depending on the industry and historical collection patterns. For example, if a company has $1,000,000 in credit sales and uses a 2% estimate for bad debts, it would assume that $20,000 of the credit sales will not be collected.
This amount would be recorded as an expense on the company's income statement, reducing its net income. By utilizing the percent of sales method, companies can better anticipate and plan for potential losses from uncollectible credit sales.