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 Credit Losses
Source: Based on data from Caterpillar Inc. Annual Reports
1 Allowance as a percentage of finance receivables, gross = 100 × Allowance for credit losses ÷ Finance receivables, gross
= 100 × 362 ÷ 22,632 = 1.60%
|Allowance as a percentage of finance receivables, gross||Allowance for credit losses divided by the gross financing receivable.||Caterpillar Inc.'s allowance as a percentage of finance receivables, gross increased from 2015 to 2016 and from 2016 to 2017.|