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An accounting entry that properly reflects contingent liabilities.
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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.


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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
The amendment would allow the use of low-level lapse rates in calculating reserves for the secondary or no-lapse guarantee.
New York City Housing Development Corporation last week approved the use of $71.8 million of tax-exempt and taxable bond financing as well as $26.68 million of the Corporation's reserves for the for the construction of 724 units of low- and middle-income housing in five developments.
gold stock, this gold cover was repealed, also in March 1968, freeing up additional gold reserves for international settlement.(4)