Bad-debt Reserve

Bad-debt Reserve means:
a reasonable percentage of accounts receivable, which then becomes an addition to the reserve for bad debts. For example, if a business determines that, on the average, 3% of its accounts receivable become worthless during the taxable year, the business may deduct 3% and add this amount to its bad-debt reserves. The Tax Reform Act of 1986 repealed this reserve method for all businesses except certain financial and thrift institutions.