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 ?
Reportedly, net book value reflects not only the bad debt reserve, but also interest deferrals, allowances for cash option loans (specific loans on which customers can earn a waiver of interest), and allowances for charged off interest.
The collectability percentage is greatly reduced at this age, indicating a much greater risk, and many companies, including ours, analyze and use this as part of their bad debt reserve calculation.
The company said that besides lower sales volume, the decline was attributable to write-downs and revaluations, an increase in bad debt reserve and unfavorable foreign exchange rates.
In addition, mounting delinquencies among hard-pressed consumers resulted in a $135 million pretax loss in Target's credit card business, as the retailer added $245 million to its bad debt reserve.
Accounts receivable controls include fluctuations of days sales outstanding balances, tests of reasonableness on the bad debt reserve and the creation of manual journal entries.
Examples are the bad debt reserve and the valuation of stocks.
For example, Alliance tracks the accounts sent to collection agencies to assist the utility in determining expected bad debt reserve levels.
Obie last year took a $6 million charge for restructuring its transit contracts and increased its bad debt reserve by $1.
The Dole-Roth amendment would offset the revenue loss associated with these provisions by tightening the tax on expatriates, enhancing earned income credit compliance, repealing the special bad debt reserve rules for thrift institutions, and phasing out interest deductibility for loans against corporate owned life insurance.
The special bad debt reserve treatment that provides tax benefits - and, hence, subsidy - to mortgage lending by thrift institutions no longer serves a perceivable public policy function and, hence, should be removed going forward.
Under the law in effect before the repeal, a taxpayer could either (1) deduct a reasonable addition to a bad debt reserve under section 166(c) or (2) deduct a debt that it can prove actually became worthless during the year (under section 166(a)).
24348(b), which is similar to, but not exactly the same as, the federal bad debt reserve method in effect prior to TRA 86.