Facebook Inc. (FB)
Analysis of Bad Debts
High level of difficulty
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
Accounts Receivable and Allowances
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. Facebook makes estimates for the allowance for doubtful accounts and allowance for unbilled receivables based upon the assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of the customers, current economic conditions, and other factors that may affect the ability to collect from customers.
Source: 10-K (filing date: 2019-01-31).
Allowance for Doubtful Accounts Receivable
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts and allowance for unbilled receivables ÷ Accounts receivable, gross
= 100 × ÷ =
|Allowance as a percentage of accounts receivable, gross||Allowance for doubtful accounts divided by the gross accounts receivable.||Facebook Inc.’s allowance as a percentage of accounts receivable, gross increased from 2016 to 2017 but then slightly declined from 2017 to 2018.|