.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.
Allowance for Doubtful Accounts Receivable
| Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | Sep 30, 2013 | Sep 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Allowances for doubtful accounts | ||||||
| | Receivables, gross | ||||||
| Ratio | |||||||
| | Allowance as a percentage of receivables, gross1 | % | % | % | % | % | % |
Source: Based on data from Emerson Electric Co. Annual Reports
2017 Calculations
1 Allowance as a percentage of receivables, gross = 100 × Allowances for doubtful accounts ÷ Receivables, gross
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of receivables, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Emerson Electric Co.'s allowance as a percentage of receivables, gross increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
