allowance for doubtful accounts

(redirected from Bad-Debt Reserve)

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 ?
The current-year bad-debt reserve represents a $2 million increase from the prior year.
Another related benefit is that we can be more targeted with our bad-debt reserve. We use our risk score and aging to define a reserve for bad debt.
Among other provisions, AB 2065, Laws 2002, eliminates the bad-debt reserve method for large banks (thus conforming to the Federal bad-debt provisions) and reduces the overpayment interest rate.
dollars, or in local currency, on a monthly basis to determine the quality and trend of receivables, including some performance measurements such as Days Sales Outstanding (DSO), Average Terms of Sale (ATS), Days Delinquent Sales Outstanding (DDSO), and bad-debt reserve balances.
Under the periodic system, the taxpayer establishes a bad-debt reserve account based on the ratio multiplied by the amount of the outstanding receivables.
How much should be included in bad-debt reserves? Is an event more likely than not to occur?
The FSC originally required domestic financial institutions to appropriate 0.5% of outstanding debt claims for bad-debt reserves in three years.
To the extent that these disclosures were reliable, these data indicate that HealthSouth used bad-debt reserves to manipulate earnings.
Those who do not hold a policy with an insurer carry it in the form of bad-debt reserves that tie up capital and are often held in amounts larger than necessary.
Japan's economic woes, he writes in ''Which Is Wrong, the Bank of Japan or the Financial Services Agency?'' stem basically from the way the shortage of bad-debt reserves in banks has sapped their ability to serve as financial intermediaries.
Results for the recently completed period reflect some $6.2 million in various noncash charges, including $1.7 million in interest and penalties, $676,000 in impairment charges, over $1 million in bad-debt reserves, and $2.8 million in amortization and depreciation.
The FSC announced plan to curb price competition among banks by raising bad-debt reserves, to no avail so far.