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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

Allowance for doubtful accounts and authorized credits

eBay records the allowance for doubtful accounts based upon the assessment of various factors. eBay considers historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect the customers' ability to pay. The allowance for doubtful accounts and authorized credits was $102 million and $81 million as of December 31, 2017 and 2016, respectively.

Source: eBay Inc., Annual Report

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Allowance for Doubtful Accounts Receivable

 
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 authorized credits
Accounts receivable, gross
Ratio
Allowance as a percentage of accounts receivable, gross1 % % % % %

Source: Based on data from eBay Inc. Annual Reports

2017 Calculations

1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts and authorized credits ÷ 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. eBay Inc.'s allowance as a percentage of accounts receivable, gross increased from 2015 to 2016 and from 2016 to 2017.

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