allowance for doubtful accounts

(redirected from Bad Debt Allowances)

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 facility is secured by diversified accounts receivables with less than 3% bad debt allowances and easy to liquidate commodity inventory, which justifies the one-notch upgrade from the company's IDR.
Based upon these analyses, the financial results for the three months and year ended December 31, 2007, include a change in estimates of the Company's contractual and bad debt allowances.
The improved profitability reflects the clean up of contractual and bad debt allowances that significantly affected profitability in fiscal 2005, an improved methodology for reserving doubtful accounts, greater expense controls and monitoring, and efforts to improve the filing of Medicare and Medicaid cost reports.
Selling, general and administrative expenses increased $381,000 on a quarter-to-quarter comparison due principally to greater bad debt allowances.
Bad debt allowances were also increased in line with increased risk.