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 ?
As a result, the Company recorded additional allowances for doubtful accounts which are included in the Company's restated third quarter and year-end financial statements for fiscal year 2019, and in the Company's first quarter results for fiscal year 2020, as referenced within each respective management discussion and analysis.
Hertz further disclosed that the planned restatement is due to errors relating to, among other items, the capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, allowances for uncollectible amounts with respect to renter obligations for damaged vehicles, and restoration obligations at the end of facility leases.
We note that this happened largely due to the recognition of allowances for doubtful accounts receivable from LLC Angarskiy Cement which went into liquidation at the beginning of 2010.
For financial accounting, the bad debt expense is the change in the beginning and ending allowances for doubtful accounts and is a contra-account to accounts receivable, while the tax deduction for bad debts is limited to those accounts that have been written off in the current tax year.
Further, the B3 rating reflects the risks related to the company's financial reporting including allowances for doubtful accounts and related party transactions," Moody's said.
Excluding charges for reorganisation and allowances for doubtful accounts worth 13 cents per share, Baker Hughes earned 31 cents a share.
After they are described, the techniques are demonstrated using data from three technology companies--Dell, Apple Inc., and Cisco Systems Inc.--that exhibit markedly different historical patterns in the estimation and use of their allowances for doubtful accounts. All data used in this article is available in these companies' filings at sec.gov.
Evaluate the reasonableness of estimates, such as valuation of inventories, depreciation, and allowances for doubtful accounts.