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 ?
Prompted by these concerns, the Federal Reserve Board and private-sector groups began studies of the causes and potential means of controlling payment system risk, including the risk arising from daylight overdrafts in Federal Reserve accounts.
During the period between the imposition of caps in March 1986 and the implementation of fees in April 1994, daylight overdrafts in Federal Reserve accounts increased almost continuously.
When the borrower and the lender do not use the same clearing bank, this process involves tranfers of securities against payment via the Fedwire securities transfer system and typically generates overdrafts in the Federal Reserve accounts of the clearing banks.
Credit enhancement for the group I and II notes is comprised of excess spread, group-specific reserve accounts, subordination, and limited cross-collateralization.
Because the average base payroll is tallied on a calendar year and reserve accounts accumulate quarterly, the result is to flood the reserve balance in relation to the small average base payroll.
However, the contributions from the large payroll are added to the reserve account balance as of June 30, resulting in the minimum or very low UI rate for the next year.
Buffering potential negative reserve account charges -- A company that hires temporary workers forms a new entity and obtains a separate account number.
Credit support also includes excess spread that is used to retire the class B notes after paying fees, class A interest and principal, class B interest and principal, and funding or restoring the reserve accounts to their requisite levels.
Subordination of the class B notes (7%), a reserve account, and annual excess spread of approximately 10.
The double-'B' rating assigned to the class B notes, which are not insured by Financial Security Assurance, is based on a dedicated class B reserve account equal to 1.
The reserve account is a book account that tracks UI contributions an employer pays as well as the benefit charges that are paid out to employees who have been laid off.
But if someone is fired for good cause, like chronic absenteeism, theft of company property, drinking alcohol on the job or other misconduct, good documentation practices can help deny a UI claim and spare the company more charges to its reserve account.