allowance for doubtful accounts

(redirected from Provision for Bad Debts)
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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 ?
SHARES in online bank Egg have fallen 2pc after a rise in its provision for bad debts took the shine off rising profits at its core UK business.
The problems: slack growth in the ultra-competitive retail market and an increased provision for bad debts.
Lloyds also unveiled plans to cull 5,000 jobs and reported a higher provision for bad debts as shares slumped 40.