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: 2023-09-30), 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).
1 2023 Calculation
Allowance as a percentage of accounts receivable, gross = 100 × Allowance for expected credit losses ÷ Accounts receivable, gross
= 100 × ÷ =
The financial data reveals several notable trends regarding accounts receivable and the allowance for expected credit losses over the six-year period ending in 2023.
- Allowance for expected credit losses
- This figure decreased significantly from 177 million USD in 2018 to 90 million USD in 2023, with a notable drop between 2020 and 2022 where the allowance declined from 173 million to 62 million USD before slightly increasing again to 90 million USD in 2023. This suggests a reduction in anticipated credit risk or improved collection processes overall, although the uptick in the most recent year indicates some renewed caution or deterioration in credit quality.
- Accounts receivable, gross
- The gross accounts receivable value declined from 7,242 million USD in 2018 to 5,590 million USD in 2022, reflecting an overall reduction in outstanding receivables. However, in 2023, there was an increase to 6,096 million USD, which could imply higher sales or extended credit terms during this period.
- Allowance as a percentage of accounts receivable, gross
- The allowance ratio showed a downward trend from 2.44% in 2018, peaking slightly at 3.16% in 2020, then declining sharply to 1.11% in 2022. In 2023, the ratio increased marginally to 1.48%. This pattern indicates an initial increase in credit loss provisioning relative to receivables in 2020, perhaps reflecting economic uncertainties, followed by a substantial improvement in credit risk assessment or collection performance. The recent rise in 2023 suggests a cautious adjustment possibly in response to emerging credit risks.
Overall, the data indicates a general improvement in credit risk management and collection efficiency from 2018 through 2022, with accounts receivable levels decreasing and allowance proportions shrinking. The upticks in both the allowance amount and allowance percentage in 2023 point to a more conservative stance towards credit losses in the latest period.