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.
Identifying Risks and Opportunities: Recognize trends across the entire portfolio, calculate bad-debt reserve and see how it compares to national benchmarks so a business can strategically adjust credit policies and communicate growth opportunities.
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.
Chartis has also used SAS analytics to reconcile claim payments and estimate the need for bad-debt reserve funds related to premium receivables.
Under the periodic system, the taxpayer establishes a bad-debt reserve account based on the ratio multiplied by the amount of the outstanding receivables.
Traditionally a loss quarter for the utility due to lack of heating demand, the quarterly comparison was further impacted by higher interest expense and lower than normal customer utilization rates in 2006, and a normal seasonal reduction to the bad-debt reserve in the 2005 third quarter.
That loss was driven by reserve strengthening and a $332 million after-tax addition to its bad-debt reserve for reinsurance recoverables.
Combined with a $332 million after-tax addition to its bad-debt reserve for reinsurance recoverables and other insurance recoverables, the company reported a net loss of $1.
Combined with a $332 million addition to its bad-debt reserve for reinsurance recoverables and other charges, the company reported a net loss of $1.
0 percent of revenues, for the fourth quarter of fiscal 2002, which included a bad-debt reserve of $1.
The large increase in general and administrative expenses over the third quarter is the result of an increase in the bad-debt reserve of $1.
Almost half of the loss this quarter was attributable to a one-time bad-debt reserve for a single customer.