When the allowance method of recognizing losses from uncollectible accounts is used, the net value of accounts receivable on the balance sheet will more nearly reflect the amount that will ultimately be collected than if the direct write-off method is used.

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The allowance method is based on estimating the amount of uncollectible accounts and creating an allowance for those amounts on the balance sheet, which reduces the net value of accounts receivable to a more realistic amount that is expected to be collected. The direct write-off method, on the other hand, only recognizes bad debts when they are actually deemed uncollectible, which can lead to a mismatch between the true value of accounts receivable and what is reported on the balance sheet. Therefore, using the allowance method results in a more accurate reflection of the amount that will ultimately be collected.

When the Allowance Method of Recognizing Losses from Uncollectible Accounts