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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.
Receivables Accounting Policy
Trade Receivables
Trade and other receivables consists primarily of Automotive segment receivables from contracts with customers for the sale of vehicles, parts, and accessories. Trade receivables initially are recorded at the transaction amount and are typically outstanding for less than 30 days. Each reporting period, Ford evaluates the collectability of the receivables and record an allowance for doubtful accounts representing the estimate of the probable losses. Additions to the allowance for doubtful accounts are made by recording charges to bad debt expense reported in Selling, administrative, and other expenses.
Source: 10-K (filing date: 2018-02-08).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-18).
2017 Calculations
1 Allowance as a percentage of receivables, gross = 100 × Allowances for doubtful receivables ÷ Receivables, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of receivables, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Ford Motor Co.’s allowance as a percentage of receivables, gross increased from 2015 to 2016 and from 2016 to 2017. |
Allowance for Credit Losses
Based on: 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-18).
2017 Calculations
1 Allowance as a percentage of recorded investment in finance receivables = 100 × Allowance for credit losses ÷ Recorded investment in finance receivables
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of recorded investment in finance receivables | Allowance for credit losses divided by the gross financing receivable. | Ford Motor Co.’s allowance as a percentage of recorded investment in finance receivables increased from 2015 to 2016 and from 2016 to 2017. |