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 ?
The negative outlook reflects our view of the risk that ADNIC's capital, earnings, and liquidity cushions could fall short of the rating we view as commensurate with the 'A-' rating over the next two years.
We are learning the lessons of the crisis in requiring better capitalization for our banks and larger liquidity cushions, two essential elements for stronger stability in our financial system," EU Commissioner for Internal Market Michel Barnier said in a statement.
Financial soundness indicators constructed from individual bank balance sheets suggest that GCC banks remain well capitalised and profitable with system-wide capital and liquidity cushions that helped them weather the global financial turmoil better in 2009," said George Abed, IIF Senior Counsellor and Director of the Middle East-Africa Department.
Moody's recognises that BisB has demonstrated its capacity to weather the current financial stress, especially by maintaining ample asset liquidity cushions," Moody's lead analyst Anouar Hassoune said.
Nonetheless, Moody's recognises that BisB has demonstrated its capacity to weather the current financial stress, especially by maintaining ample asset liquidity cushions," Mr Hassoune said.
Our mortgage company has significant short-term funding liquidity cushions and is supplemented by the ample liquidity sources of our bank," Sieracki continued.
Fitch attributes this stability to conservative portfolio management practices exhibited by Fitch-rated prime MMFs, which are managed with substantial liquidity cushions relative to Fitch rating criteria and regulatory requirements.
Capital levels are up, risk taking is more measured, liquidity cushions are larger, exposures to riskier activities have been monitored more effectively and many high risk activities have diminished.
There would not be wholesale downgrades as companies have built sufficient liquidity cushions to endure a credit market shutdown.
Ratings will reflect the sufficiency of revenue bond debt service coverage and/or liquidity cushions.