allowance for doubtful accounts

(redirected from Reserve for Loan Loss)

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 ?
The Bank, which earned approximately $153 thousand for the quarter prior to the provision for loan losses, earned net income of $16 thousand for the last two months of the quarter after providing $119 thousand to the reserve for loan loss.
In addition, IIB added $931,866 to its Reserve for Loan Loss Account during the first half of 2004, including $421,866 in net recoveries, resulting in the Reserve for Loan Losses rising to 2.
Recognizing the increased risk in a rapidly growing loan portfolio and the acquisition of the Orchard Bank loan portfolio, the reserve for loan loss increased to $5.
Recognizing the increased risk in a rapidly growing loan portfolio the reserve for loan loss represents approximately 2% of outstanding balances, or $5 million.