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 ?
Such reserves include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policy-holders undeclared, and other similar reserves established voluntarily or in compliance with statutory regulations.
As disclosed in the corporation's second quarter 2002 earnings press release dated July 23, 2002, Freddie Mac conducted a review of its loan loss reserves and concluded that its loan loss reserve balance has been approximately $250 million more than the level required.
Are banks with generous loan loss reserves practicing conservative accounting or earnings manipulation?
The report details the overall loss reserve environment, including discussion of emerging trends in current accident year reserving, reserve ratio analysis for the four largest reserve lines, and adequacy of asbestos and environmental loss reserves.
The process of estimating, testing, and opining about carried loss reserves usually is performed by professionals who are credentialed members of the Casualty Actuarial Society.
Because of the significance of loss reserves to the financial statements of property and liability insurance entities, as well as the complexity and subjectivity involved in estimating loss reserves, the SOP requires the use of an outside loss reserve specialist who cannot be an employee or officer of the company.
The first quarter loss provisions will include approximately $8 million of additions to loss reserves on three major non-residential real estate loans and one foreclosed commercial real estate property where recently received information indicates that the delinquency situation or property values or both have further deteriorated during the quarter.
If AEGIS' operating performance or risk-adjusted capital levels (as measured by net written premiums-to-surplus and loss reserve-to-GAAP surplus ratios) fail to stabilize at improved levels, or if the company's loss reserves develop unfavorably to a material degree, the rating may be downgraded.
Underwriting results also have benefited from the release of prior-year loss reserves.
This rating reaffirmation is in response to the announcement today that Travelers' principal property and casualty subsidiary, the Travelers Indemnity Company, will take a $325 million pre-tax charge to earnings for additions to loss reserves for asbestos and environmental liabilities and litigation.
3 billion at the end of 1991, while loan loss reserves dropped narrowly to $56.
Although adverse reserve development has impacted operating margins in recent years, the overall percentage of adverse development to total loss reserves continues to moderate, as favorable loss reserve development attributed to more recent accident years has tempered the impact of adverse loss reserve development on accident years 1997-2001.