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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 ?
Feder, apparently referring to Carmello's proposal, wrote that a proposal to increase required statutory reserves for certain UL insurance contracts under AG 38 "appears to have hit a roadblock, a potential positive for life insurers with sizable UL businesses," such as Jefferson Pilot, Lincoln National and MetLife.
This has spawned some industry concerns over the adequacy of the statutory reserves for such products calculated under the current guidelines.
CHICAGO -- Fitch Ratings has affirmed the ratings of Chesapeake Energy Corporation (Chesapeake) following the company's announcement that it is in the process of acquiring 264 billion cubic feet (bcf) of proven reserves for $796 million.