Bad debt reserve

Receivables that may not be collectable. The bad debt reserve is an offset to accounts receivable.

For each period, the management  adjusts this reserve according to its estimates of bad debt. Such reserve accounts are sometimes used by management to manipulate earnings. A decrease in the reserve for bad debt will increase net receivables reported on the balance sheet.  This has the effect of reducing expenses on the income statement, and hence increase the net income.

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