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 ?
In the first quarter of 2007, Arkansas banks collectively had a loan-loss reserve ratio of 1.
Under, a new loan-loss reserve agreement between FedNor and Northern Ontario credit unions, high-risk businesses in the North will be given access to the capital and consulting services they need to either get a new business off the ground or to expand an existing enterprise.
After the announcement of this initiative, the SEC raised concerns regarding the loan-loss reserve practices of some banking organizations, requiring one banking organization to reduce its reserves by $100 million.
ln the absence of a market, the loan-loss reserve is designed to help customers through bad times.
While the bank is optimistic about Southern California's economic environment, its loan-loss reserve remains fully funded at approximately 2 percent of total loans.
I would like to point out that the November 1991 interagency policy statement stated that, although the value of collateral is a relevant factor in the evaluation of a loan, supervisory policies do not require automatic increases to the loan-loss reserve solely because the value of the collateral supporting a performing loan has declined to an amount less than the loan balance as long as there are no weaknesses that jeopardize repayment of the credit.
38 billion yen in bad loans, chiefly by funneling money into its loan-loss reserve accounts.
Sanwa said it set aside money equal to 100% of the loans to bankrupt firms, while it funneled money equivalent to 73% of risky loans into loan-loss reserve accounts.
The banking industry, joined by the ruling Liberal Democratic Party, had warned that stringent bad-loan calculation criteria and loan-loss reserve requirements could exacerbate the already-rampant cautious stance on lending.
The 15% loan-loss reserve requirement is likely to apply to about 10% of these loans.
For ''second category'' loans involving greater-than-normal recovery risks, LTCB's loan-loss reserve ratio was also lower than those of other big banks, the sources said.