Analysis of Bad Debts

Difficulty: Advanced

Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company's gross accounts receivable.The relationship between the allowance and the balance in receivables should be relatively constant unless there is a change in the economy overall or a change in customer base.


Allowance for Doubtful Accounts Receivable

 
Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013 Jun 30, 2012
Selected Financial Data (USD $ in thousands)
Allowance for doubtful accounts 49,600  38,100  35,500  55,700  50,900  46,500 
Accounts receivable, gross 1,753,200  1,780,900  1,582,400  1,856,100  1,649,200  1,445,800 
Ratio
Allowance as a percentage of accounts receivable, gross1 2.83% 2.14% 2.24% 3.00% 3.09% 3.22%

Source: Based on data from Automatic Data Processing Inc. Annual Reports

2017 Calculations

1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 49,600 ÷ 1,753,200 = 2.83%

Ratio Description The company
Allowance as a percentage of accounts receivable, gross Allowance for doubtful accounts divided by the gross accounts receivable. Automatic Data Processing Inc.'s allowance as a percentage of accounts receivable, gross declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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