The allowance-for-bad-debt account is needed because the face value of a bank's loans are not the actual value, since a certain portion of those assets can be reasonably predicted to go bad.
Increases to the allowance for bad debt are made by periodic loan-loss provisions, which replenish the allowance and are recorded on the income statement as an expense. The use of the allowance method tends to smooth bank earnings, which otherwise might undergo unusual fluctuations when loans that have deteriorated over long periods of time are charged off together in a single period.
резерв на покриття втрат з безгрошової заборгованості