Accounts Receivable Reserves Policy

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This policy outlines steps for developing an accounts receivable reserve account for bad debts, returns and allowances, and customer allowances.

In this sample, it is the policy of the company that accounts receivable are recorded at face value and that an offsetting reserve account is established for bad debts, returns and allowances, and customer allowances, e.g., value-added reseller allowances. This reserve account shall be set at such a level so as to bring the accounts receivable to their estimated net realizable value. The reserve account is composed of three separate parts: the reserve for bad debts account, the returns and allowances account, and the customer allowances account.

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