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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
Allowance for Credit Losses
Receivables are recorded concurrent with billing and shipment of a product and/or delivery of a service to customers. A reasonable estimate of probable net losses on the value of customer receivables is recognized by establishing an allowance for credit losses.
Notes and Accounts Receivable—Trade
An allowance for uncollectible trade receivables is estimated based on a combination of write-off history, aging analysis and any specific, known troubled accounts.
Source: 10-K (filing date: 2018-02-27).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).
2017 Calculations
1 Allowance as a percentage of notes and accounts receivable, gross = 100 × Allowances for doubtful notes and accounts receivable ÷ Notes and accounts receivable, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of notes and accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | International Business Machines Corp.’s allowance as a percentage of notes and accounts receivable, gross declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Allowance for Credit Losses
Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).
2017 Calculations
1 Allowance as a percentage of financing receivables, gross = 100 × Allowance for credit losses ÷ Financing receivables, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of financing receivables, gross | Allowance for credit losses divided by the gross financing receivable. | International Business Machines Corp.’s allowance as a percentage of financing receivables, gross declined from 2015 to 2016 and from 2016 to 2017. |