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 purpose of this RFP is for the City to retain actuarial services to conduct an independent actuarial review of the loss reserve requirements in accordance with Generally Accepted Accounting Principles (GAAP) for its self-insured Workers Compensation program.
Includes Accounting Treatment of Loan Loss Reserve Reduction
Marie Desmarais-Santi, a policy and planning officer with FedNor, says the loan loss reserve agreement is FedNor's latest initiative aimed at generating new business in Northern Ontario, and that a similar arrangement has been made with Caisse Populaire, another Northern Ontario banking group.
property/casualty industry loss reserve position remains within a range of adequacy.
Finally, the CAS and the academy co-sponsor the Casualty Loss Reserve Seminar, an annual seminar dedicated to loss reserving.
It applies, however, if the auditor uses that appraiser's work in connection with substantive tests to evaluate the adequacy of the loan loss reserve.
The FY 1993 audit shows that HUD's multifamily loan loss reserve was reduced by $1.
If AEGIS' operating performance or risk-adjusted capital levels (as measured by net written premiums-to-surplus and loss reserve-to-GAAP surplus ratios) fail to stabilize at improved levels, or if the company's loss reserves develop unfavorably to a material degree, the rating may be downgraded.
Prolonged soft market conditions have eroded loss reserve margins.
As a result, loss reserve coverage for the banking system improved.
Somewhat offsetting these strengths are continued exposure to adverse loss reserve development from prior accident years and reporting issues whereby Odyssey Re Holdings twice delayed the filing of financial statements in 2006 and was cited by independent auditors as having material weaknesses in accounting for various reinsurance contracts and investments.
The provision to the loan loss reserve for the six month period totalled $1,395,000 as compared with the provision of $665,000 for the six months ended June 30, 1992.