Which method estimates uncollectible accounts based on the company's sales history and receivables?

The correct choice is the percentage of sales method, which estimates uncollectible accounts based on the company’s sales history. This method operates under the premise that a certain percentage of credit sales will ultimately become uncollectible, allowing businesses to estimate and account for bad debts more systematically.

When a company uses the percentage of sales method, it applies a predetermined percentage rate to its total sales made on credit during a specific period. This percentage is often derived from historical data or industry standards, reflecting past experiences regarding the proportion of sales that have turned into bad debts. This approach allows for better matching of expenses with revenues, as it recognizes bad debt expense in the same period when the related sales revenue is recognized.

In contrast, the direct write-off method records bad debt expense only when an account is deemed uncollectible, which can lead to mismatched expenses and revenue if write-offs occur in a different period. The allowance method, while it involves estimating bad debts, does not specifically focus on sales history for its calculations. The income approach is more focused on evaluating revenue and profitability rather than estimating uncollectible accounts. Thus, the percentage of sales method provides a more systematic approach to estimating uncollectible accounts based on sales history.