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Coca-Cola Co. (KO)
Analysis of Bad Debts
High level of difficulty
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.
Accounting Policy on Receivables
Trade Accounts Receivable
Coca-Cola records trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the trade accounts receivable balances and charged to the provision for doubtful accounts. Coca-Cola calculates this allowance based on the history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and the relationships with, and the economic status of, the bottling partners and customers. Coca-Cola believes the exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by the operations.
A significant portion of Coca-Cola’s net operating revenues and corresponding accounts receivable is derived from sales of the products in international markets. Coca-Cola also generates a significant portion of the net operating revenues by selling concentrates and syrups to bottlers in which Coca-Cola has a noncontrolling interest.
Source: 10-K (filing date: 2019-02-21).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).
2018 Calculations
1 Allowance as a percentage of trade accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Trade accounts receivable, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of trade accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Coca-Cola Co.’s allowance as a percentage of trade accounts receivable, gross increased from 2016 to 2017 and from 2017 to 2018. |