Final answer:
The statement that the estimation of bad debts expense relates to the write-off of uncollectible accounts is True. The allowance method estimates uncollectible accounts to accurately report receivables on the balance sheet and match expenses and revenues. When accounts are uncollectible, they are written off against the allowance for doubtful accounts.
Step-by-step explanation:
The estimation of bad debts expense is indeed related to the write-off of uncollectible accounts, so the statement is True. In accounting, companies use the allowance method for accounting for bad debts, which estimates the amount of receivables that will not be collected in the future. This estimation process is crucial for reporting purposes to ensure that the accounts receivable are not overstated on the balance sheet and that expenses are matched with revenues in the income statement as per the matching principle.
Furthermore, the allowance method makes it possible to anticipate losses due to bad debts before the actual write-off occurs, which makes financial statements more predictive and useful for users. Once a specific account is deemed to be uncollectible, it is then written off against the allowance for doubtful accounts. The initial estimation of bad debts expense has a direct impact on a company's reported profitability.