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 ?
Bonner said the best reason to have credit insurance is to increase resources available to lower internal bad debt reserves.
The final amendment comes from a proposal released in June 2017 as proposed Accounting Standard Update (ASU) 2017-260, Technical Corrections and Improvements to Topic 942: Financial Services--Depository and Lending--Elimination of Certain Guidance for Bad Debt Reserves of Savings and Loans.
According to the whistleblower, close to half that figure was as a result of writing back bad debt reserves into profits.
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.
More stringent credit control led to a greater-than-expected decline in bad debt reserves. Sales through the collaboration with Dentsu rose 2.6% YoY, but otherwise advertising sales fell 0.8%.
It is fact that during 1996, MCI wrote off $120 million of carrier receivables and recognized even more exposure by adding to bad debt reserves. So, his claim that MCI "hid" bad debt expense is just bogus.
"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.
Despite the setback HSBC still transferred 40 per cent of a pounds 187.5 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.
For example, inventory and bad debt reserves and loss contingency accruals are frequently disputed.
Extraordinary losses accrued to employees' retirement allowances and bad debt reserves, however, offset part of the growth in Daiei's net profit.