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 Doubtful Accounts Receivable
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowances for doubtful accounts ÷ Accounts receivable, gross
= 100 × 38,700 ÷ 4,585,000 = 0.84%
|Allowance as a percentage of accounts receivable, gross||Allowance for doubtful accounts divided by the gross accounts receivable.||Eli Lilly & Co.'s allowance as a percentage of accounts receivable, gross declined from 2015 to 2016 and from 2016 to 2017.|