allowance for doubtful accounts

(redirected from Allowances for Bad Debts)

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 ?
The 2009 result is arrived at after charging Dh294 million as allowances for bad debts in view of the uncertainties affecting certain of the group's contracting receivables,' it said.
The economic downturn results in higher allowances for bad debts.
Thus, Chinese enterprises don't generally provide for lower-of-cost-or-market inventory adjustments or the creation of allowances for bad debts.
7 million after-tax charge in order to address lower asset values of jet engine inventory supporting older generation aircraft (727's, DC9's, DC10's) as well as to increase allowances for bad debts associated with now-bankrupt airline carriers and cargo companies.
Gross margin is reduced by any or all of the following expenses: GS&A, costs of goods sold, salaries, maintenance, royalties, license fees, bad debts and/or allowances for bad debts and other expenses; and further reduced by taxes, depreciation, amortization, interest or other, as yet, unspecified deductions, charges and adjustments that may or may not be dictated by our accountants and auditors.