Like depreciation, a provision for uncollectable accounts represents an expense that is non-cash in nature. A provision for uncollectable accounts is recognized on the operating statement. However, it does not result in a cash flow, but reflects the amount that an agency writes off for receivables that the agency feels will not be collected. Therefore, a provision for uncollectable accounts is shown as a reconciling item in the statement of cash flows.
Since uncollectable accounts decrease operating income, but do not result in a cash outflow, the provision is added back to operating income to reconcile net cash provided from operating activities.