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Broadcom Inc. (AVGO)
Analysis of Bad Debts
Advanced level
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.
Accounting Policy on Receivables
Trade accounts receivable, net
Trade accounts receivable are recognized at the invoiced amount and do not bear interest. Accounts receivable are reduced by an allowance for doubtful accounts, which is Broadcom’s best estimate of the amount of probable credit losses in the existing accounts receivable. Broadcom determines the allowance based on customer-specific experience and the aging of such receivables, among other factors. Allowances for doubtful accounts were not material as of November 3, 2019 or November 4, 2018. Accounts receivable are also recognized net of sales returns and distributor credit allowances. These amounts are recognized when it is both probable and estimable that discounts will be granted or products will be returned. Allowances for sales returns and distributor credit allowances at November 3, 2019 and November 4, 2018 were $178 million and $161 million, respectively.
Source: 10-K (filing date: 2019-12-20).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29).
1 2019 Calculation
Allowance as a percentage of trade accounts receivable, gross = 100 × Allowances for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
| Financial ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of trade accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. |