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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Greenberg added that the market hardening he sees "is income and loss reserve driven, not capital driven."
Citigroup cost of credit in the first quarter 2019 was $2.0B, a 7% increase, driven by a lower loan loss reserve release in ICG as well as growth and seasoning in Citi-Branded Cards and Citi Retail Services in North America GCB.
Prior-period loss reserve releases also provided a boost to underwriting performance, representing approximately 1.9% of earned premium in 1H'18 versus 1.4% in the prior year.
First, we investigate whether overall earnings quality, as measured by the noisiness (standard deviation) of an insurer's loss reserve errors, is related to the firm's financial strength rating.
Certain provisions within the law appear to have an effect on both the company that owns the captive and captive itself, particularly with changes designed to simplify loss reserve discounting.
If you have a fault for too much loan loss reserve or too little, I want to fault on too much reserve.
Commercial automobile liability insurance continues as a standout weak performer, generating a large 2015 underwriting loss and adverse loss reserve development due to claims severity issues.
Consistent claims management from the beginning of the claim life cycle can reduce the need for incremental increases of loss reserve. Analytics can more accurately calculate the loss reserve by comparing a loss with similar claims.
It was obliged to set a $46 million loan loss reserve in 2009, and had its contributions to the Federal Deposit Insurance Fund increased by $6.2 million.
In addition, the ultimate decision on the limitation of the loss reserves can affect the calculation of the premium deficiency reserve, as the loss reserve is a source of funds in the definition of premium deficiency given in SSAP No.
This article addresses an opportunity in the utility industry for significant benefits, Building on the concepts put forth in "Scoring the Account Lifecycle," this article will articulate why a company should take the logical next step beyond the use of statistically based behavioral scoring for risk analysis and collection treatment strategies to the use of statistical methods for loss reserve calculation.