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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

TRADE RECEIVABLE VALUATIONS

Accounts receivable are stated at their net realizable value. The allowance against gross trade receivables 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 charged off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.

Source: Abbott Laboratories, 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)
Allowances for doubtful accounts and product returns
Trade receivables, gross
Ratio
Allowance as a percentage of trade receivables, gross1 % % % % %

Source: Based on data from Abbott Laboratories Annual Reports

2017 Calculations

1 Allowance as a percentage of trade receivables, gross = 100 × Allowances for doubtful accounts and product returns ÷ Trade receivables, gross
= 100 × ÷ = %

Ratio Description The company
Allowance as a percentage of trade receivables, gross Allowance for doubtful accounts divided by the gross accounts receivable. Abbott Laboratories's allowance as a percentage of trade receivables, gross declined from 2015 to 2016 and from 2016 to 2017.

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