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 ?
A report for the committee by finance boss Paul Garret said that PS1.447 million had been set aside as a "bad debt provision" to tackle the issues with the trunk road contract and that, along with "unallocated budget pressure funding of PS1.256 million, meant the department was able to balance its books.
A report to the cabinet by local authority officials stated: "It is recommended that the cabinet agrees to write-off the sum of PS3,363,049 of historical Community Charge, which can be met from existing bad debt provision, without impact to the Council's General Fund balances.
Bank of New Zealand, a unit of National Bank of Australia (NAB:ASX) has announced an increase in its bad debt provision.
Even though total credit card revenues plummeted 22.1% to $379 million during the three months ended October 30, the bad debt provision contracted 63.5% from prior-year levels to $110 million, helping total expenses decrease 43.3% to $229 million.
Bad debt provision of pounds 75million saw profits slashed from more than pounds 33million a year ago.
The firm, who sell household goods under names such as the Cotswold Company, Kitbag and Ace, said they were adding pounds 5million to their bad debt provision for the year until March 31, with profits hit as a result.
According to Lancaster, this was due to a one-time pretax bad debt provision of about $5 million, which covered the exposure from a bankruptcy filing of a major distributor of the company's specialty food products to the food-service industry.
Few companies disclose that the change in receivables is before the bad debt provision.
"The decline in result of 2011 versus the previous year 2010 was mainly due to the company selling on credit and arose mainly due to a change in the bad debt provision calculation methodology based on the Saudi Arabian Monetary Agency (SAMA) instruction number 201007/5/ dated 7/8/1431H and which resulted in the bad debt provision increasing by SR 12 million during 2011, and motor claims provision increase as result of the new royal decree on blood money," the insurance company explained.
UK dairy food company Dairy Crest Group plc (LSE:DCG) reported today that it will increase its bad debt provision by up to GBP4m after one of its customers went into administration.
HiSoft Technology International Limited (Nasdaq:HSFT), a China-based provider of outsourced IT and R&D services, revealed on Wednesday that it will include a bad debt provision of USD3.5m in its results for the full year of 2010.
The move also left third quarter figures down sharply as Santander booked a 472 million euro (pounds 413 million) bad debt provision.