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Thermo Fisher Scientific Inc. (TMO)
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
Accounts receivable are recorded at the invoiced amount and do not bear interest. Thermo Fisher maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to pay amounts due. The allowance for doubtful accounts is Thermo Fisher’s best estimate of the amount of probable credit losses in existing accounts receivable. Thermo Fisher determines the allowance based on the age of the receivable, the creditworthiness of the customer and any other information that is relevant to the judgment. Account balances are charged off against the allowance when Thermo Fisher believes it is probable the receivable will not be recovered. Thermo Fisher does not have any off-balance-sheet credit exposure related to customers.
Source: 10-K (filing date: 2019-02-27).
Allowance for Doubtful Accounts Receivable
Based on: 10-K (filing date: 2019-02-27), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-26).
2018 Calculations
1 Allowance as a percentage of accounts receivable, gross = 100 × Allowance for doubtful accounts ÷ Accounts receivable, gross
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Allowance as a percentage of accounts receivable, gross | Allowance for doubtful accounts divided by the gross accounts receivable. | Thermo Fisher Scientific Inc.’s allowance as a percentage of accounts receivable, gross increased from 2016 to 2017 and from 2017 to 2018. |