allowance for doubtful accounts

(redirected from Bad-Debt Reserves)

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 ?
5% of outstanding debt claims for bad-debt reserves in three years.
It is meant to approximate the capabilities of an auditor with three to four years of experience, he says, but can't handle more complicated judgment issues An example: whether the company was setting enough aside in bad-debt reserves.
This legislation requires that 50% of the applicable excess bad-debt reserves be taken into income in 2002; the remaining 50% is never taken into income.
The FSC announced plan to curb price competition among banks by raising bad-debt reserves, to no avail so far.
Another $50 million is for an increase in bad-debt reserves and $15 million is related to the company's new credit-card plans.
The inventory and bad-debt reserves charges were recorded in the fourth quarter and are attributed to a change in both the average estimated loss due to the closing of the company's retail car lot as well as the adoption of a static pool analysis for bad debts.
Total bad-debt reserves of domestic banks reached only NT$200 billion now, against over NT$20 trillion of total loans, and it's questionable whether such reserves are sufficient enough to cover possible loss in the future, according to Lee.