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 ?
There is heated political debate over reserves for bad debts and whether the Bank of Korea (BOK) should enact a "Korean version" of quantitative easing and inject capital to the banks.
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.
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.
The effect of unification will cause banks to increase their reserves for bad debts.
LADD also will increase its reserves for bad debts and slowmoving inventories.