Microsoft Excel LibreOffice Calc

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.


Receivables Accounting Policy

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: Facebook Inc., Annual Report


Allowance for Doubtful Accounts Receivable

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Allowance for doubtful accounts and allowance for unbilled receivables 189  94  68  39  38 
Accounts receivable, gross 6,021  4,087  2,627  1,717  1,147 
Ratio
Allowance as a percentage of accounts receivable, gross1 3.14% 2.30% 2.59% 2.27% 3.31%

Source: Based on data from Facebook Inc. Annual Reports

2017 Calculations

1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts and allowance for unbilled receivables ÷ Accounts receivable, gross
= 100 × 189 ÷ 6,021 = 3.14%

Ratio Description The company
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 declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.