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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

Accounts Receivable

HP establishes an allowance for doubtful accounts for accounts receivable. HP records a specific reserve for individual accounts when HP becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. If there are additional changes in circumstances related to the specific customer, HP further adjusts estimates of the recoverability of receivables. HP maintains bad debt reserves for all other customers based on a variety of factors, including the use of third-party credit risk models that generate quantitative measures of default probabilities based on market factors, the financial condition of customers, the length of time receivables are past due, trends in the weighted-average risk rating for the portfolio, macroeconomic conditions, information derived from competitive benchmarking, significant one-time events and historical experience. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable.

HP has third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers. These financing arrangements, which in certain cases provide for partial recourse, result in the transfer of HP’s trade receivables to a third party. HP reflects amounts transferred to, but not yet collected from, the third party in accounts receivable in the Consolidated Balance Sheets. For arrangements involving an element of recourse, the fair value of the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Balance Sheets.

Source: 10-K (filing date: 2018-12-13).


Allowance for Doubtful Accounts Receivable

Microsoft Excel LibreOffice Calc
Oct 31, 2018 Oct 31, 2017 Oct 31, 2016 Oct 31, 2015 Oct 31, 2014 Oct 31, 2013
Selected Financial Data (USD $ in millions)
Allowance for doubtful accounts hidden hidden hidden hidden hidden hidden
Accounts receivable, gross hidden hidden hidden hidden hidden hidden
Ratio
Allowance as a percentage of accounts receivable, gross1 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-12-13), 10-K (filing date: 2017-12-14), 10-K (filing date: 2016-12-15), 10-K (filing date: 2015-12-16), 10-K (filing date: 2014-12-18), 10-K (filing date: 2013-12-30).

2018 Calculations

1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Allowance as a percentage of accounts receivable, gross Allowance for doubtful accounts divided by the gross accounts receivable. HP Inc.’s allowance as a percentage of accounts receivable, gross declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Allowance for Credit Losses

Microsoft Excel LibreOffice Calc
Oct 31, 2018 Oct 31, 2017 Oct 31, 2016 Oct 31, 2015 Oct 31, 2014 Oct 31, 2013
Selected Financial Data (USD $ in millions)
Allowance for doubtful accounts hidden hidden hidden hidden hidden hidden
Financing receivables, gross hidden hidden hidden hidden hidden hidden
Ratio
Allowance as a percentage of financing receivables, gross1 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-12-13), 10-K (filing date: 2017-12-14), 10-K (filing date: 2016-12-15), 10-K (filing date: 2015-12-16), 10-K (filing date: 2014-12-18), 10-K (filing date: 2013-12-30).

2018 Calculations

1 Allowance as a percentage of financing receivables, gross = 100 × Allowance for doubtful accounts ÷ Financing receivables, gross
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Allowance as a percentage of financing receivables, gross Allowance for credit losses divided by the gross financing receivable.