Analysis of Bad Debts
Allowance for doubtful accounts receivable (bad debts) is a contra account which reduce the balance of the company 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.
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Allowance for Doubtful Accounts Receivable
Based on: 10-K (reporting date: 2022-09-30), 10-K (reporting date: 2021-09-30), 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30).
1 2022 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowances for returns and credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
- Allowances for returns and credit losses
- The allowance for returns and credit losses displayed an overall upward trend from 2017 to 2022. Beginning at approximately 1.05 billion US dollars in 2017, it experienced a modest decline in 2018, followed by continuous increases through 2020 and a slight decrease in 2021. In 2022, the allowance reached its highest recorded amount of approximately 1.63 billion US dollars. This pattern may indicate increasing anticipated credit risks or return liabilities, particularly pronounced in the last recorded year.
- Accounts receivable, gross
- The gross accounts receivable showed consistent growth over the six-year period. Starting from around 11.35 billion US dollars in 2017, there was a steady year-over-year increase, culminating in approximately 20.08 billion US dollars in 2022. The rate of growth accelerated notably between 2020 and 2021, where the increase was more substantial compared to prior years. This rising trend reflects expanding sales or credit extended to customers, which may imply increased business volume or changes in credit policies.
- Allowance as a percentage of accounts receivable, gross
- This ratio fluctuated over the period with some volatility. The percentage began at 9.25% in 2017, experienced a decline to 8.39% in 2018, and then rose again in 2019 and 2020 to approximately 9.29%. In 2021, there was a significant decrease to 6.95%, representing a much lower proportion of allowances relative to gross receivables. However, in 2022, the percentage increased again to 8.1%. The drop in 2021 suggests either improvements in credit quality or more conservative estimation of allowances the previous year, while the subsequent increase in 2022 may reflect heightened caution or deteriorating credit conditions.