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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

Client Receivables, Unbilled Services and Allowances

Accenture records its client receivables and unbilled services at their face amounts less allowances. On a periodic basis, Accenture evaluates its receivables and unbilled services and establishes allowances based on historical experience and other currently available information. As of August 31, 2017 and 2016, total allowances recorded for client receivables and unbilled services were $74,450 and $79,440, respectively. The allowance reflects Accenture's best estimate of collectibility risks on outstanding receivables and unbilled services. In limited circumstances, Accenture agrees to extend financing to certain clients. The terms vary by contract, but generally payment for services is contractually linked to the achievement of specified performance milestones.

Source: Accenture PLC, Annual Report

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Allowance for Doubtful Accounts Receivable

 
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Selected Financial Data (USD $ in thousands)
Allowances recorded for client receivables and unbilled services
Client receivables and unbilled services, gross
Ratio
Allowance as a percentage of client receivables and unbilled services, gross1 % % % % % %

Source: Based on data from Accenture PLC Annual Reports

2017 Calculations

1 Allowance as a percentage of client receivables and unbilled services, gross = 100 × Allowances recorded for client receivables and unbilled services ÷ Client receivables and unbilled services, gross
= 100 × ÷ = %

Ratio Description The company
Allowance as a percentage of client receivables and unbilled services, gross Allowance for doubtful accounts divided by the gross accounts receivable. Accenture PLC's allowance as a percentage of client receivables and unbilled services, gross increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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