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.
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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 ?
On December 17, 2010, the FASB took the uncommon step of issuing for comment a revised ED, Presentation and Disclosure of Net Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts, which reflects the EITF's final consensus.
The newly revised law for foreign-funded enterprises permits a provision for bad debts, but only up to 3 percent of ending accounts receivable.
Lloyds cut its provision for bad debts to pounds 1.7 billion, down 31% from the previous quarter, while its exposure to troubled eurozone countries Portugal, Ireland, Italy, Spain and Greece reduced 6% to pounds 22.9 billion.
It said in the medium-term banks face a potential problem from the number of businesses and homeowners that are struggling to repay their loans or mortgages and warned that banks may have made inadequate provision for bad debts. The committee, which has been set up to oversee the country's financial stability in the wake of the credit crunch, advised banks to hoard more money during the good times to prepare them for any shocks ahead.
Lloyds also unveiled plans to cull 3,000 jobs and reported a higher provision for bad debts as shares slumped 40 1 /2p at 734 1 /2p.
Among its other European problems were cancellation or postponement of several projects which could not meet production schedules, increased bad check losses in the check services operation, and a provision for bad debts. For 1999, Equifax predicts continued revenue and earnings growth, with earnings per share for the year likely to increase 17% to 19%.
The committee also said in the medium-term banks face a potential problem from the number of businesses and homeowners that are struggling to repay their loans or mortgages and warned that banks may have made inadequate provision for bad debts.
LOSSES: Peter Wright of Finance Wales Investments which said its pre-tax losses were due to provision for bad debts, coupled with no revenue-generating equity exit realisations
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.
It reported profits up by 28 per cent in the first half of the year - mostly thanks to a drop in its provision for bad debts. Naturally, in view of its ancestry, the bank was hit hard by the Asian financial crisis which would now appear to be over the worst.
Banking group Lloyds TSB reported half-year profits of pounds 1.78bn yesterday as cost controls helped it overcome a 20% jump in provision for bad debts.