Starbucks Corp. (SBUX)
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
Receivables, net of Allowance for Doubtful Accounts
Starbucks’ receivables are mainly comprised of receivables for product and equipment sales to and royalties from the licensees, as well as receivables from the CPG customers. Starbucks’ allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. As of September 30, 2018 and October 1, 2017, Starbucks’ allowance for doubtful accounts was $8.0 million and $9.8 million, respectively.
Source: 10-K (filing date: 2018-11-16).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 8,000 ÷ 701,100 = 1.14%
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Starbucks Corp.’s allowance as a percentage of accounts receivable, gross declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |