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 ?
According to the whistleblower, close to half that figure was as a result of writing back bad debt reserves into profits.
By reducing the bad debt reserve on this scale, you will be able to take excess bad debt reserves back into income (by provisioning significantly less) thus improving earnings, shareholder equity, financial ratios, etc.
This new ability helps to ensure adequate bad debt reserves and equity capital to absorb any adverse outcome without jeopardizing solvency.
Mounting foreclosures, and sinking asset values on the banks' books, mean that banks need to keep adding to their bad debt reserves, resulting in the need for additional capital to bolster balance sheets.
This allowed the company to fund key growth initiatives and bolster bad debt reserves," he added.
The group, whose head office is in Edinburgh, said it had to squirrel away pounds 64million more to boost its bad debt reserves to pounds 236million during the first half of the year, anticipating a rise in repayment problems for customers.
5 million special general provision set aside for the Asian crisis in 1997 to its general bad debt reserves to cover any increases in the US.
Extraordinary losses accrued to employees' retirement allowances and bad debt reserves, however, offset part of the growth in Daiei's net profit.
Also, an international distributor's failure to pay caused the company to set aside $500,000 in bad debt reserves.
In addition, doing so allows a company to replace nondeductible bad debt reserves with export credit insurance premiums that are a fully tax-deductible business expense.
Then out of the remaining accumulated bad debt reserves for qualifying and nonqualifying loans and the supplemental reserve, to the extent thereof; and