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Gilead Sciences Inc. (GILD)
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
Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and doubtful accounts. Estimates for wholesaler chargebacks for government and other programs and cash discounts are based on contractual terms, historical trends and Gilead’s expectations regarding the utilization rates for these programs. Estimates of Gilead’s allowance for doubtful accounts are determined based on existing contractual payment terms, historical payment patterns of the customers and individual customer circumstances, an analysis of days sales outstanding by geographic region and a review of the local economic environment and its potential impact on government funding and reimbursement practices. Historically, the amounts of uncollectible accounts receivable that have been written off have been insignificant.
Source: 10-K (filing date: 2019-02-26).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).
2018 Calculations
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowances for doubtful accounts, cash discounts and chargebacks ÷ Accounts receivable, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Gilead Sciences Inc.’s allowance as a percentage of accounts receivable, gross declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |