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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.
Receivables Accounting Policy
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. Accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. The allowance for doubtful accounts was $58 million at December 31, 2017 and $72 million at December 31, 2016.
Source: 10-K (filing date: 2018-02-16).
Allowance for Doubtful Accounts Receivable
1 Allowance as a percentage of accounts and other receivables, gross = 100 × Allowance for doubtful accounts ÷ Accounts and other receivables, gross
= 100 × ÷ =
|Allowance as a percentage of accounts and other receivables, gross||Allowance for doubtful accounts divided by the gross accounts receivable.||AbbVie Inc.’s allowance as a percentage of accounts and other receivables, gross declined from 2015 to 2016 and from 2016 to 2017.|