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Microsoft Excel LibreOffice Calc

3M Co. (MMM)

Analysis of Bad Debts

Advanced level

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.

Accounting Policy on Receivables

Accounts receivable and allowances

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. 3M maintains allowances for bad debts, cash discounts, product returns and various other items. The allowance for doubtful accounts and product returns is based on the best estimate of the amount of probable credit losses in existing accounts receivable and anticipated sales returns. 3M determines the allowances based on historical write-off experience by industry and regional economic data and historical sales returns. 3M reviews the allowance for doubtful accounts monthly. 3M does not have any significant off-balance-sheet credit exposure related to its customers.

Source: 10-K (filing date: 2019-02-07).

Allowance for Doubtful Accounts Receivable

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Allowances hidden hidden hidden hidden hidden
Accounts receivable, gross hidden hidden hidden hidden hidden
Financial Ratio
Allowance as a percentage of accounts receivable, gross1 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 2018 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × hidden ÷ hidden = hidden

Financial ratio Description The company
Allowance as a percentage of accounts receivable, gross Allowance for doubtful accounts divided by the gross accounts receivable. 3M Co.’s allowance as a percentage of accounts receivable, gross increased from 2016 to 2017 but then decreased significantly from 2017 to 2018.