allowance for doubtful accounts

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Allowance for Doubtful Accounts

Extra funds from sales, or another source, set aside in order to pay off bad debt if and when it arises. The allowance helps a company ward off any potential cash flow problems should its credit sales not be repaid as expected. On financial statements, it is important to note that an allowance for bad debts exists for fiscal conservatism and not because one expects a large amount of bad debt to accumulate. An allowance for doubtful accounts is also called a cushion. Banks call these funds the loan loss reserve. See also: Savings account.

allowance for doubtful accounts

A balance-sheet account established to offset expected bad debts. If a firm has made a sufficient provision in its allowance for doubtful accounts, reported earnings will not be penalized by bad debts when the bad debts occur. If uncollectible accounts are larger than expected, however, the firm will have to increase the size of the account and reduce reported income. Also called allowance for bad debts, reserve for bad debts.
References in periodicals archive ?
Accounts receivable, less allowance for bad debts accounts of $272 and $193, respectively
As of December 31, 2013, cash and accounts receivable, net of allowance for bad debts, totaled USD2.
In contrast, by mechanically adjusting book income for the $2 million increase in the allowance for bad debts account, ABC could not claim any portion of the $800,000 deduction until a write-off entry is recorded for financial accounting purposes.
As I reviewed the customer accounts the assistant had selected for testing, I noticed an unusual one: a $90,000 credit to accounts receivable control, with an offset to the allowance for bad debts.
2 million charge for the collection of outstanding receivables in its animal nutrition business and an additional $5 million to increase its allowance for bad debts from $1.
Adjusted EBITDAX is a non-GAAP financial measure and as used herein represents net income before interest income (expense) net, income tax expense, depletion, depreciation and amortization, impairment of proved properties, exploration expense and our other non-cash or unusual items of stock compensation expense and allowance for bad debts.
Once, for example, the auditors thought the allowance for bad debts at my company was too low.
Cash $70,000 $10,000 Accounts receivable 80,000 100,000 Less: allowance for bad debts (5,000) (10,000) Interest receivable 0 5,000 Merchandise inventory 120,000 80,000 Prepaid interest 5,000 0 Property, plant and equipment 550,000 650,000 Less: accumulated depreciation (145,000) (160,000) Long-term certificates of deposit 200,000 125,000 Total assets $875,000 $800,000
Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (1) Celera was not adequately reserving for its allowance for bad debts in violation of Generally Accepted Accounting Principles ("GAAP"), causing its financial results to be materially misstated; (2) the Company had failed to maintain effective internal controls concerning its billing and collections processes, and (3) the Company could not substantially increase its Lab Services business that was under contract with third-party insurance payors and thus could not reduce its exposure to uncollectible accounts receivables.
According to the complaint, the true facts, which were then known by or available to the defendants during the Class Period, were: (a) Celera was not adequately reserving for its allowance for bad debts in violation of Generally Accepted Accounting Principles, causing its financial results to be materially misstated; (b) the Company had failed to maintain effective internal controls concerning its billing and collections processes; and (c) the Company could not substantially increase its Lab Services business that was under contract with third-party insurance payors and thus could not reduce its exposure to uncollectible accounts receivables.
Included in selling, general and administrative expenses in the second quarter of 2009 was an allowance for bad debts of $856,000 primarily related to factory receivables from two overseas vendors who ceased production.

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