allowance for doubtful accounts


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Related to allowance for doubtful accounts: Bad Debt Expense

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 ?
In general, this new safe harbor allows taxpayers to compute uncollectible revenues as 95% of their allowance for doubtful accounts related to receivables generated in the current year.
The mean can be compared to the benchmark figure of one to two years to determine whether a firm's allowance for doubtful accounts balance is reasonable in relation to subsequent write-offs.
For example, a company with a beginning allowance for doubtful accounts of $1 million in year one, and write-offs of $700,000 in year one and $600,000 in year two would exhaust its allowance in 1.
35, indicating a good deal of consistency in the relationship between the allowance for doubtful accounts balance and subsequent write-offs.
The entry to reduce the allowance for doubtful accounts would be as follows: Allowance for Doubtful Accounts: $400,000
A change in a taxpayer's method for determining the portion of the taxpayer's applicable financial statement allowance for doubtful accounts that is attributable to current-year NAE-eligible accounts receivable is an accounting method change to which Sec.
Previously available safe harbors would produce results approximating 65% of the book allowance for doubtful accounts.
In the second quarter of 2009, allowance for doubtful accounts was $20.
8 million in the fourth quarter of 2007, which also includes the special items discussed below as well as the previously mentioned incremental charge related to the allowance for doubtful accounts.
Financial results for the year ended December 31, 2008, as compared with the full year 2007, including restructuring and related charges, and other special items as described below, as well as the incremental charge in the 2007 fourth quarter to increase the Company's allowance for doubtful accounts of $94 million pretax ($60.
3 million in the comparable prior-year period, which also includes the incremental charge to increase the allowance for doubtful accounts.
During the three years prior to 2008 the Company's allowance for doubtful accounts has ranged from 1.