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 ?
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 1.5 years ($1 million - $700,000 = $300,000 left for the next year; $300,000 / $600,000 = 0.5 years).
In fact, write-offs during the past four years are only slightly lower than the beginning balances in Dell's allowance for doubtful accounts, indicating that Dell has been successful at predicting anticipated write-offs.
However, the beginning-allowance-to-write-offs ratio and exhaustion rates indicate that Apple's allowance for doubtful accounts was exceedingly high prior to 2000.
The analysis indicates that Apple maintains an extraordinarily large allowance for doubtful accounts. As of the end of 2008, Apple had not yet exhausted the allowance that was in place at the beginning of 2004.
We're aware of no evidence indicating that any of the companies in our analysis used the allowance for doubtful accounts to intentionally misstate or manipulate any financial results.
However, auditors should keep in mind that accounting estimates, such as the allowance for doubtful accounts, can be used to manage earnings.
A broader look at the industry in which Apple, Cisco and Dell operate reveals that estimating the allowance for doubtful accounts is not an easy task.
* A description of the method the taxpayer uses to determine its allowance for doubtful accounts on its applicable financial statements before and after the change; and
Over the past several years, the allowance for doubtful accounts had increased significantly, from about $100,000 in 1997 (audited) to approximately $450,000 in 2000 (unaudited).
The entry to reduce the allowance for doubtful accounts would be as follows: Allowance for Doubtful Accounts: $400,000
Other Revenue--Reduction in allowance for doubtful accounts: $400,000
FY2016 ) Orders Received Decreased compared to FY2016 when orders for submarines were received, due to termination of a shipbuilding contract for an offshore service vessel, despite orders received for LPG carrier and Kawasaki JETFOIL Net Sales Decreased due to decrease in construction works related submarine, and other factors Operating Income Improved compared to FY2016 when there were increase of the amount of allowance for doubtful accounts on trade receivables, and increase in provision for loss on construction contracts FY2018 Forecast (vs.