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 ?
H treats the three reserve accounts in its financial statements as giving rise to temporary differences that will reverse in future years.
H cannot combine the Schedule M-3 differences for the three reserve accounts.
The Reserve Banks are currently processing and posting these payments to depository institutions' Federal Reserve accounts by 9:15 a.
The revised policy requires that, beginning July 20, 2006, Reserve Banks will release these interest and redemption payments as directed by the issuer provided the issuer's Federal Reserve account contains sufficient funds to cover them.
In addition, released funds from the defeasance will be used to fund required reserve accounts and the cost of issuance.
The rating also reflects the sufficient level of Authority contribution to cover costs of issuance and the initial deposits to the following accounts: an Escrow Reserve Account to cover a portion of principal and interest payments on certain classes of certificates; a Principal and Interest (P&I) Reserve Fund as a reserve for payment of principal and interest on all classes of certificates; a FNMA Reserve Fund for payment of principal and interest on those certificates collateralized by FNMA certificates; and a Subsidy Escrow Account with advance funding of three months of mortgage interest rate subsidies.
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.
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.
Credit enhancement for the group I and II notes is comprised of excess spread, group-specific reserve accounts, subordination, and limited cross-collateralization.
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.
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.