Reserve account


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Reserve account

A separate amount of cash or letter of credit to service a payment requirement such as debt service or maintenance.

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.
References in periodicals archive ?
When you rehire former employees who are receiving UI benefits, the charge against your reserve account will disappear.
Buffering potential negative reserve account charges -- A company that hires temporary workers forms a new entity and obtains a separate account number.
Prompted by these concerns, the Federal Reserve Board and private-sector groups began studies of the causes and potential means of controlling payment system risk, including the risk arising from daylight overdrafts in Federal Reserve accounts.
During the period between the imposition of caps in March 1986 and the implementation of fees in April 1994, daylight overdrafts in Federal Reserve accounts increased almost continuously.
When the borrower and the lender do not use the same clearing bank, this process involves tranfers of securities against payment via the Fedwire securities transfer system and typically generates overdrafts in the Federal Reserve accounts of the clearing banks.
With the exception of activity that adds or removes intraday reserves from the entire banking system, such as open market operations, changes in intraday float, or changes in Treasury cash balances, Federal Reserve accounts constitute a "closed" system.
In the six months after the implementation of fees, positive intraday balances held by depository institutions in Federal Reserve accounts averaged about $70 billion, compared with $90 billion in the preceding six months.
In particular, the securities clearing banks, who have experienced the largest reductions in overdrafts, have charged fees to their securities-dealer customers whose market activity, particularly RP transactions, creates overdrafts in the Federal Reserve accounts of the clearing banks.
Greater use of private payment systems could further trim daylight overdrafts in Federal Reserve accounts by reducing the volume of funds transfers through the Federal Reserve.
Greater use of private systems for securities transfers could also reduce use of daylight credit in Federal Reserve accounts.
Moreover, their use in large-value transfers would not necessarily reduce daylight overdrafts in Federal Reserve accounts relative to current methods because of differences in the intraday timing of payments posted to Federal Reserve accounts.
H cannot combine the Schedule M-3 differences for the three reserve accounts.