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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 notes and accounts receivable, gross = 100 × Reserves for doubtful notes and accounts receivable ÷ Notes and accounts receivable, gross
= 100 × ÷ =
|Allowance as a percentage of notes and accounts receivable, gross||Allowance for doubtful accounts divided by the gross accounts receivable.||Exxon Mobil Corp.’s allowance as a percentage of notes and accounts receivable, gross increased from 2015 to 2016 but then slightly declined from 2016 to 2017.|