The purpose of this policy is to establish a consistent method for determining the bad debt reserve amount in order to report realizable accounts receivable on the financial statements.
In this sample, the company maintains a bad debt reserve via a general reserve and a specific reserve. The general reserve is calculated by applying a percentage to each AR bucket. The percentage methodology is reviewed at least annually to ensure that it is appropriate and consistent with the current business environment the company is operating in. The general reserve methodology is applied net of any specific reserves from each bucket. A specific reserve is also calculated at least quarterly.