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Microsoft Excel LibreOffice Calc

United Parcel Service Inc. (UPS)

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, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. Losses on accounts receivable are recognized when they are incurred, which requires UPS to make the best estimate of the probable losses inherent in the customer receivables at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for current conditions, trends in customer payment frequency and judgments about the probable effects of relevant observable data, including present economic conditions and the financial health of specific customers and market sectors. UPS’ risk management process includes standards and policies for reviewing major account exposures and concentrations of risk.

UPS’ total allowance for doubtful accounts as of December 31, 2018 and 2017 was $94 and $104 million, respectively. UPS’ total provision for doubtful accounts charged to expense before recoveries during the years ended December 31, 2018, 2017 and 2016 was $118, $133 and $116 million, respectively.

Source: 10-K (filing date: 2019-02-21).

Allowance for Doubtful Accounts Receivable

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

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-27).

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. United Parcel Service Inc.’s allowance as a percentage of accounts receivable, gross declined from 2016 to 2017 and from 2017 to 2018.