reserve for bad debts


Also found in: Acronyms.

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.

reserve for bad debts

References in periodicals archive ?
Similar rules are provided for a member's deduction for the worthlessness of (and for an addition to a reserve for bad debts with respect to) an obligation.
585 or 593 for an addition to its reserve for bad debts with respect to an intercompany obligation is not taken into account until the intercompany obligation becomes a nonintercompany obligation, or, if earlier, the redemption or collection of less than the "recorded amount" of the obligation.
(10) prior to 1986, taxpayers were permitted to deduct a reserve for bad debts. Sec.