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 ?
"From a credit stance, if the business is self-insured with a sufficient bad debt reserve, picking up a policy would only be an additional expense," said Bonner.
The company said the net income in 2017 included a substantial decrease in general and administrative expense due to a reversal of a bad debt reserve as well as other income comprised primarily from the favourable settlement of a lawsuit and as a result of the sale of Pennsylvania State R&D tax credits.
GPAs apply a percentage to each aging bucket to arrive at a bad debt reserve. That percentage is typically calculated based on historical data of how much cash was actually collected for the outstanding invoices in each bucket.
* Project the overall profit or loss to the bank to adjust the interest for bad debt reserve accounts that affect the bank's bottom line.
The company said that besides lower sales volume, the decline was attributable to write-downs and revaluations, an increase in bad debt reserve and unfavorable foreign exchange rates.
In addition, mounting delinquencies among hard-pressed consumers resulted in a $135 million pretax loss in Target's credit card business, as the retailer added $245 million to its bad debt reserve. The bottom line for the fourth quarter consequently tumbled to $609 million from $1.03 billion, while full-year profits fell 22% to $2.21 billion.
* Accounts receivable controls include fluctuations of days sales outstanding balances, tests of reasonableness on the bad debt reserve and the creation of manual journal entries.
Examples are the bad debt reserve and the valuation of stocks.
1, 2004, G Corp., a calendar-year taxpayer, established a $100,000 allowance for uncollectible accounts receivable (bad debt reserve).
For example, Alliance tracks the accounts sent to collection agencies to assist the utility in determining expected bad debt reserve levels.
Obie last year took a $6 million charge for restructuring its transit contracts and increased its bad debt reserve by $1.3 million.
The Dole-Roth amendment would offset the revenue loss associated with these provisions by tightening the tax on expatriates, enhancing earned income credit compliance, repealing the special bad debt reserve rules for thrift institutions, and phasing out interest deductibility for loans against corporate owned life insurance.