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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
|Dec 31, 2020||Dec 31, 2019||Dec 31, 2018||Dec 31, 2017||Dec 31, 2016|
|Selected Financial Data (US$ in millions)|
|Accounts receivable, gross|
|Allowance as a percentage of accounts receivable, gross1|
1 2020 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowances ÷ Accounts receivable, gross
= 100 × ÷ =
|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 2018 to 2019 and from 2019 to 2020.|