allowance for doubtful accounts

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Financial Dictionary

Allowance for Doubtful Accounts

An estimation made by a company and documented on its balance sheet for receivables that might go uncollected.

Investopedia Commentary

It is standard practice for a company to have funds set aside for money that cannot be collected.

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Financial Dictionary

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.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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