allowance for doubtful accounts

(redirected from Reserves 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 ?
Depending on the extent and duration of the strike, asset quality and profitability could come under pressure for banks, especially smaller institutions lacking adequate reserves for loan losses, which could pressure ratings.
According to the Wall Street Journal, this is the first time since 2009 that Wells Fargo has moved to build up reserves for loan losses. The bank's portfolio of energy loans represents totals about $18 billion, or about 2% of all outstanding loans.
Monthly data from the US Federal Reserve shows that, as a whole, large commercial banks increased their reserves for loan losses by just under 2 per cent in August, to $70bn, after 10 consecutive months of drawdowns.
According to a BSP statement, "the decline in the NPL comes amidst a more conservative handling of their reserves for loan losses." Thrift banks' loan loss provisioning stood at 70.27 percent during the period, which is a lower NPL coverage ratio than the same time last year of 72.28 percent but higher than end-March's 69.37 percent.
Bond-trading and investment-banking revenue was aided by a decline in reserves for loan losses, which bolstered earnings.
The bank's net loss for 2010 has been revised upward because of reserves for loan losses and clients' advance payments of RUB105.5bn.
Loans net of reserves for loan losses have increased USD73.3m or USD21.2 percent over the same period.
In striving to paint a rosier picture, Hunter said the primary factor in the second-quarter net loss was an increase in the allowance from $22.5 million at quarter end to $28 million."The increase in reserves for loan losses doesn't reflect deterioration in the loan portfolio," maintained Hunter.
In view of the weak economy, Siuslaw officials said, the bank is continuing to put more money into its reserves for loan losses - $800,000 in the first six months of this year.
(1) This has tended to mean that reserves for loan losses on a bank's balance sheet need to grow significantly during an economic downturn, a time associated with increased credit impairment and default events.
Forced to set aside large reserves for loan losses due to persistent housing market weakness, the U.S.
The bank also estimates 57 billion yen in operating profit -- the most important gauge of a bank's core profitability before general reserves for loan losses are subtracted -- for fiscal 2001, it said.