Microsoft Excel LibreOffice Calc

Walgreens Boots Alliance Inc. (WBA)


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

Accounts receivable are stated net of allowances for doubtful accounts. Accounts receivable balances primarily consist of trade receivables due from customers, including amounts due from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), clients and members. Trade receivables were $5.4 billion and $5.5 billion at August 31, 2018 and August 31, 2017, respectively. Other accounts receivable balances, which consist primarily of receivables from vendors and manufacturers, including receivables from AmerisourceBergen, were $1.2 billion and $1.1 billion at August 31, 2018 and August 31, 2017, respectively.

Charges to allowance for doubtful accounts are based on estimates of recoverability using both historical write-offs and specifically identified receivables. The allowance for doubtful accounts at August 31, 2018 and August 31, 2017 was $75 million and $158 million, respectively.

Source: 10-K (filing date: 2018-10-11).


Allowance for Doubtful Accounts Receivable

Microsoft Excel LibreOffice Calc
Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013
Selected Financial Data (US$ in millions)
Allowance for doubtful accounts 75  158  166  172  173  154 
Accounts receivable, gross 6,648  6,686  6,426  7,021  3,391  2,786 
Ratio
Allowance as a percentage of accounts receivable, gross1 1.13% 2.36% 2.58% 2.45% 5.10% 5.53%

Based on: 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20), 10-K (filing date: 2013-10-21).

2018 Calculations

1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 75 ÷ 6,648 = 1.13%

Ratio Description The company
Allowance as a percentage of accounts receivable, gross Allowance for doubtful accounts divided by the gross accounts receivable. Walgreens Boots Alliance Inc.’s allowance as a percentage of accounts receivable, gross declined from 2016 to 2017 and from 2017 to 2018.