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
Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-26), 10-K (filing date: 2015-02-27), 10-K (filing date: 2014-02-27).
2017 Calculations
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × 210 ÷ 7,083 = 2.96%
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Merck & Co. Inc.'s allowance as a percentage of accounts receivable, gross increased from 2015 to 2016 and from 2016 to 2017. |