Analysis of Bad Debts
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.
Allowance for Doubtful Accounts Receivable
1 2019 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × 161 ÷ 4,952 = 3.25%
|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 decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.|