allowance for doubtful accounts

(redirected from Loan Loss Reserves)

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 results included a pre-tax addition of about USD305m to its loan loss reserves.
The Company's leverage, calculated as book debt net of unrestricted cash and cash equivalents, divided by the sum of book equity, accumulated depreciation and loan loss reserves, each as determined in accordance with GAAP, was 2.
The anticipated losses were recorded as loan loss reserves for buildings including 1330 Avenue of the Americas, which Macklowe currently owns, and 527 Madison Avenue, which Macklowe sold, the filings show.
31, Pacific Continental increased its loan loss reserves to cover the default of loans on motels in Tillamook and Garibaldi.
Mori made the comment in reference to the IMF's using calculations by analysts of Japanese banks' bad loans and an additional amount of loan loss reserves.
Are banks with generous loan loss reserves practicing conservative accounting or earnings manipulation?
Nor should we forget the punitive instincts of savings and loan examiners, whose passion for requiring the setting up of loan loss reserves is likely to be rekindled if the economy turns down.
Banks increased loss provisions more than net charge-offs and ended the year with somewhat higher loan loss reserves (chart 2).
WebEquity Solutions([R]) LLC (WebEquity) today announced the introduction of WebEquity([R]) ALLL, the industry's most comprehensive software solution to help banks systematically and accurately calculate and manage their loan loss reserves.
As disclosed in the corporation's second quarter 2002 earnings press release dated July 23, 2002, Freddie Mac conducted a review of its loan loss reserves and concluded that its loan loss reserve balance has been approximately $250 million more than the level required.
Banks have become more conservative in establishing loan loss reserves in the last four or five years, so I don't think this bulletin will make a big difference in reserve requirements.
Although the commercial loan book represents a minor component of assets, there are a few rather large relationship exposures, which if they were to deteriorate, could stress the bank's relatively low level of loan loss reserves, which for the most part has been driven down by low losses.