allowance for doubtful accounts

(redirected from Reserves for Bad Debts)

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 ?
Aging and Analysis: Delta must maintain adequate information concerning the age of outstanding bills and claims for proper overall control of accounts receivable and related reserves for bad debts.
More specifically, the Complaint alleges that defendants failed to disclose and indicate the following: (1) that the Company was materially inflating its financial results; (2) that the Company was prematurely recognizing revenue on various contracts; (3) that the Company's practice of improperly recognizing revenue was in violation of Generally Accepted Accounting Principles; (4) that the Company overstated its inventory; (5) that the Company failed to have adequate reserves for bad debts, inventory, cost overruns, and projected losses on certain projects; and (6) as a result, the Company's financial results were materially inflated at all relevant times.
While a few cases of earnings distortions arise from manipulation of transactions, most arise from manipulating "soft-number" accruals, such as restructuring charges and reserves for bad debts and inventory obsolescence.
LADD also will increase its reserves for bad debts and slowmoving inventories.
During this time, HMA changed its bad debt accounting methodology such that it now reserves for bad debts at 12% of revenues versus historical averages near 7.
More specifically, the Complaint alleges that defendants failed to disclose and indicate the following: (1) that the Company was materially inflating its financial results; (2) that the Company was prematurely recognizing revenue on various contracts; (3) that the Company's practice of improperly recognizing revenue was in violation of Generally Accepted Accounting Principles ("GAAP"); (4) that the Company overstated its inventory; (5) that the Company failed to have adequate reserves for bad debts, inventory, cost overruns, and projected losses on certain projects; and (6) as a result, the Company's financial results were materially inflated at all relevant times.
As more fully described in the Form 10-Q filed with the Securities and Exchange Commission, the Company took charges of ($3,968,000) to revalue certain inventory it purchased under a long term agreement with an OEM, and ($422,000) to increase the reserves for bad debts, among other charges, and reversed tax reserves of $810,000 during the quarter.
01 when compared to the same prior year period due to a decrease in interest income and additional reserves for bad debts.
Nasdaq: HCSG) announced that due to the changes in Medicare payments to its client base, enacted under the "Prospective Pay System," and other industry trends, including recent bankruptcy petitions filed by some national clients, it expects to increase its reserves for bad debts and payroll related insurance for the year ended December 31, 1999.
The Company incurred significant non-recurring expenses during the quarter, including the cost of recruiting and relocating the new management ($95,940), inventory valuation adjustments primarily attributable to changes in the industrial products portfolio ($95,000), expenditures associated with product introductions and the termination of the Clean Green Acquisition ($100,000) and reserves for bad debts and future settlements with several former distributors ($93,363).
We also increased our reserves for bad debts and returns by $375,000, which now gives us a total of approximately $725,000 in this area.
Further, given current indications of economic weakness, LADD will increase its reserves for bad debts and slow-moving inventories where appropriate, he noted.