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
1 2020 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for credit losses ÷ Accounts receivable, gross
= 100 × 1,252 ÷ 25,169 = 4.97%
|Financial ratio||Description||The company|
|Allowance as a percentage of accounts receivable, gross||Allowance for doubtful accounts divided by the gross accounts receivable.||Verizon Communications Inc.’s allowance as a percentage of accounts receivable, gross decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.|