allowance for doubtful accounts

(redirected from Bad-Debt Allowance)

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 ?
29 billion, while write-offs fell 42% to $184 million, well within the bad-debt allowance of $690 million.
However, including a bad-debt allowance of EUR 1 million, the company posted an operating loss of EUR 1.
an accrual-basis taxpayer, has $60 million of trade accounts receivable and a $7 million bad-debt allowance at the end of its tax year.