Which method provides an estimate of bad debts before accounts become uncollectible?

The allowance method provides an estimate of bad debts before accounts become uncollectible by creating an allowance for doubtful accounts. This approach involves estimating the amount of accounts receivable that may eventually be uncollectible based on historical data and trends.

Through this estimation process, businesses can anticipate potential losses and make the necessary adjustments to their financial statements. By using this method, companies can match their estimated bad debt expense to the revenues earned in the same period, adhering to the accrual accounting principles. This allows for a more accurate representation of a company's financial position, as it aligns the recognition of expenses with the revenues that generated those accounts receivable.

Other methods, such as the direct write-off method, do not estimate bad debts in advance; instead, they recognize losses only when specific accounts are deemed uncollectible. The cash basis method focuses on cash transactions and does not involve accounts receivable, while the accrual basis method pertains to the timing of revenue and expense recognition but does not specifically address bad debt estimation.