Under the allowance method:

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The allowance method involves setting up an allowance for uncollectible accounts to estimate the portion of receivables that the company may not be able to collect. This allowance is a contra account to accounts receivable and has a credit balance. When a customer's account becomes uncollectible, the company records the expense by debiting the allowance and crediting accounts receivable. This provides a more accurate estimation of the company's net accounts receivable balance.

Under the Allowance Method