FREE online courses on Refresher on Financial Planning - Chapter 1 - Percent of Sales

 

We now need to estimate account changes because of estimated sales. One way to estimate and forecast certain account balances is with the Percent of Sales Method.  By looking at past account balances and past changes in sales, we can establish a percentage relationship. For example, all variable costs and most current assets and current liabilities will vary as sales change.

 

EXAMPLE 1 - ESTIMATED ACCOUNTS RECEIVABLE

 

Past history shows that accounts receivable runs around 30% of sales. We have estimated that next year's sales will be $ 160,000. Therefore, our estimated accounts receivable is $ 48,000 ($ 160,000 x .30).