- Joined
- Apr 8, 2008
- Messages
- 19,883
- Reaction score
- 5,120
- Location
- 0.0, -2.3 on the Political Compass
- Gender
- Undisclosed
- Political Leaning
- Other
So, a reserve account can be set up for anything?
Well, not anything. There has to be some justifiable business reason to set up a reserve account. Hence why virtually all reserve accounts are generally related to sales as there may be issues of returns, repairs and bad debts. Furthermore, the amounts allocated have to have some reasonable assumptions. You can't allocate a $200 million into bad debt allowance when your total sales are $250 million for the year. Note this treatment doesn't exist for tax. The amounts unspent on the reserve purpose within 2.5 months of year end you allocate into reserves are added back to taxable income. It's called an M-1. But that's neither here nor there.