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An accounting entry that properly reflects contingent liabilities.

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.



The funds that are earmarked by a firm from its retained earnings for future use, such as for the payment of likely-to-be-incurred bad debts. The existence of such a reserve informs readers of the firm's financial statements that at least a part of the retained earnings will not be available to the stockholders. See also allowance for doubtful accounts, reserve for contingencies.
References in periodicals archive ?
Although it is difficult to quantify results in this area, it is important to note that the federal law enforcement community looks toward, and relies on, the Federal Reserve for assistance and guidance with respect to money laundering matters.
Bitstream is replacing Font Navigator, its font manager for Windows, with Font Reserve for Windows.
By temporarily selling some of its foreign currency holdings to the Federal Reserve for dollars through warehousing, the ESF was able to continue to purchase foreign currencies even after it had exhausted its initial dollar resources.

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