allowance for doubtful accounts

(redirected from Reserve for Loan Loss)

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 ?
Loans, net of reserve for loan losses, increased $26.3 million or 16.1% to $189.6 million at June 30, 2018, compared to $163.3 million at June 30, 2017.
Loans, net of reserve for loan losses, increased USD26.3m or 16.10 percent to USD189.6m at June 30, 2018, compared to USD163.3m at June 30, 2017.
As the risk level increases, the bank must increase their Reserve for Loan Losses. This is a balance sheet category where monies are set aside to draw from in the case of any future loan losses.
Given the continued weak economy, Siuslaw officials said the bank has funded its reserve for loan losses with $700,000 during the first half of 2010.
The reserve for loan losses is an example of a contra-asset.
"So our reserve for loan losses has to rise," she explained.
448(d)(5) and 593) still permits banks to establish a reserve for loan losses. (11) Sec.
In today's environment, the regulators are requiring the directors to understand the methodology used to establish the reserve for loan losses.
To address its financial problems, the FCS set aside large amounts of its shrinking income in a reserve for loan losses; in 1985 the $3 billion that it reserved for loan losses amounted to about 228 percent of its net interest income for that year.
Even though bankers and their accountants have centuries of experience estimating the amount that should appear in the balance sheet as a reserve for loan losses, there still is no agreement on what is an acceptable spread between a high and low reserve.
While SFAS 15 often precludes a reduction in the recorded amount of a troubled loan at the time it is restructured, SFAS 5 requires periodic provisions for bad debts including loans whose terms have been modified, and there appears to be no bar to providing for write offs by credits to the reserve for loan losses. If this is correct, and an appropriate reserve provision has been made for a troubled loan, then the purpose and significance of SFAS 15 is brought into question.
The bank's reserve for loan losses as of June 30, 2017 was USD34.8m or 1.31 percent of total loans, compared to USD35.1m or 1.41 percent of total loans as of December 31, 2016.