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 ?
IMF said bank loan-loss reserves have fallen short of the expected loss on non-performing loans under the current debt- at-risk in India
However, the Bank responded with increased loan-loss provisioning and coverage by loan-loss reserves rose, remaining the peer group's best.
On Friday, the firm said that its second-quarter net profit fell by 10.27 percent from a year earlier due to a rise in loan-loss reserves. Net income was KRW374.9bn in the April-June period, while it reported KRW417.8bn a year earlier.
loans were only 82% covered by loan-loss reserves, which represents low
Tier 2 capital is loan-loss reserves, some preferred stock, and subordinated debt.
The bank announced addition of $657,000 in the recent quarter to reserves for covering loans that may go bad, down from the $1.1 million it allotted to loan-loss reserves during the third quarter of last year.
Bank of America marked a turnaround into the black on the sale of China Construction Bank and a drop in loan-loss reserves amid an uptick in the U.S.
20 July 2011 -- US mortgage lender Wells Fargo (NYSE:WFC) said on Tuesday its second-quarter 2011 net income grew 30% year-on-year to USD3.73bn (EUR2.64bn), or USD0.70 per share, as write-offs dropped sharply, leading to the release of USD1bn from its loan-loss reserves.
Fannie reported a $6.5 billion net loss after it increased its loan-loss reserves, revised down its home price forecast for 2011 and took large hits on foreclosure properties.
Fewer bad loans meant the bank could reduce loan-loss reserves for its credit card unit by $2 billion, or 30 cents a share after tax.
Loan-loss reserves declined for the first time since the fourth quarter of 2006, the FDIC said.
The central bank of China would require commercial banks in the country to maintain loan-loss reserves equivalent to 2.5 per cent of total lending.