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 ?
27 percent from a year earlier due to a rise in loan-loss reserves.
Fewer bad loans meant the bank could reduce loan-loss reserves for its credit card unit by $2 billion, or 30 cents a share after tax.
Heretofore, loan-loss reserves were made based on a one-year forward time frame for "normal" loans, and a three-year forward time frame for "special attention" loans.
In the new bank revival program unveiled by Financial Services Minister Heizo Takenaka, the government calls on banks to put up more loan-loss reserves for ''loans to borrowers under close observation'' by using the discounted cash-flow calculation formula.
7 billion yen in loan-loss reserves against unprofitable exploration projects.
Subsequent to the issuance of the November statement, further questions arose regarding bank loan-loss reserves, including concerns about the possibility that the SEC would take further actions against some banks that were perceived as having excessive reserve levels.
For example, substantial loan-loss reserves are already on the books, and because pressure for this kind of change always happens at the end of a downturn, the economic cycle is likely to help rather than hinder the numbers.
Softness in California real-estate markets, where California banks do most of their real estate lending, combined with a sharp upturn in problem loan ratios, suggests that California banks may find themselves facing additional pressure to charge off problem loans and to add to loan-loss reserves.
This has taken the forms of lower regulatory ratings and insistence on higher levels of loan-loss reserves.
The bank has posted a quarterly loss on higher loan-loss reserves.
A member of a Financial Services Agency (FSA) task force looking into ways to speed up the disposal of bad loans at banks said Friday banks need to set aside more loan-loss reserves as part of the process.
It has always been, and remains, the responsibility of the institution's management to establish and maintain loan-loss reserves at an appropriate level.