Note 4. Accounts Receivable, Sales and Allowances

The nature of the Company’s business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. This is typical of the pharmaceutical industry and not necessarily specific to the Company. Depending on the product, the end‑user customer, the specific terms of national supply contracts and the particular arrangements with the Company’s wholesale customers, certain rebates, chargebacks and other credits are deducted from the Company’s accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end‑user customer (which in turn depends on the specific end‑user customer, each having its own pricing arrangement, which entitles it to a particular deduction). This process can lead to partial payments against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

Accounts receivable result primarily from sales of pharmaceutical products, amounts due under revenue sharing, license and royalty arrangements, which inherently involves, in the ordinary course of business, estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. Credit is extended based on the customer’s financial condition, and, generally, collateral is not required. The Company ages its accounts receivable using the corresponding sale date of the transaction and considers accounts past due based on terms agreed upon in the transaction, which is generally 30 to 60 days for branded and generic sales, depending on the customer and the products purchased.

With the exception of the provision for doubtful accounts, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected as a reduction of revenues in the accompanying Consolidated Statements of Operations and Comprehensive Loss.

Trade accounts receivable, net consists of the following (in thousands):


	December 31,		December 31,
	2019		2018
Gross trade accounts receivable
Trade accounts receivable	$	70,958	$	146,420
Royalty accounts receivable		702		239
Other receivable		2,186		1,562
Less reserves for:
Chargebacks		(14,624)		(38,861)
Commercial rebates		(13,579)		(49,232)
Discounts and allowances		(1,591)		(3,510)
Doubtful accounts		(138)		(194)
Total trade accounts receivable, net	$	43,914	$	56,424

For the years ended December 31, 2019 and 2018, the Company recorded the following adjustments to gross product sales (in thousands):


	Year Ended December 31,
	2019		2018
Gross product sales	$	764,267	$	948,561
Less provisions for:
Chargebacks		(345,366)		(365,043)
Government and managed care rebates		(20,092)		(18,582)
Commercial rebates		(147,173)		(257,917)
Product returns		3,932		(20,492)
Discounts and allowances		(15,719)		(20,246)
Advertising and promotions		(4,377)		(4,883)
Net product sales	$	235,472	$	261,398

For the years ended December 31, 2019 and 2018, the activity in the Company’s allowance for customer deductions against trade accounts receivable is as follows (in thousands):


					Discounts
			Commercial		and		Doubtful
	Chargebacks		Rebates		Allowances		Accounts		Total
Balance at December 31, 2017	$	32,342	$	39,233	$	3,485	$	2,081	$	77,141
Provision		365,043		257,917		20,246		(1,771)		641,435
Charges processed		(358,524)		(247,918)		(20,221)		(116)		(626,779)
Balance at December 31, 2018	$	38,861	$	49,232	$	3,510	$	194	$	91,797
Provision		345,366		147,173		15,719		(190)		508,068
Charges processed		(369,603)		(182,826)		(17,638)		134		(569,933)
Balance at December 31, 2019	$	14,624	$	13,579	$	1,591	$	138	$	29,932

The annual activity in the Company’s accrued liabilities for customer deductions by account for the years ended December 31, 2019 and 2018, is as follows (in thousands):


			Government and
	Product		Managed Care
	Returns		Rebates		Total
Balance at December 31, 2017	$	43,299	$	14,152	$	57,451
Provision		20,492		18,582		39,074
Charges processed		(15,327)		(22,753)		(38,080)
Balance at December 31, 2018	$	48,464	$	9,981	$	58,445
Provision		(3,932)		20,092		16,160
Charges processed		(11,075)		(25,206)		(36,281)
Balance at December 31, 2019	$	33,457	$	4,867	$	38,324

Provisions and utilizations of provisions activity in the current period which relate to the prior period revenues are not provided because to do so would be impracticable. The Company's current systems and processes do not capture the chargeback and rebate settlements by the period in which the original sales transaction was recorded. The Company uses a combination of factors and applications to estimate the dollar amount of reserves for chargebacks and rebates at each month end. Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. The Company regularly monitors the reserves based on an analysis of the Company’s product sales and most recent claims, wholesaler inventory, current pricing, and anticipated future pricing changes. If amounts are different from the estimate due to changes from estimated rates, accrual rate adjustments are considered prospectively when determining provisions in accordance with authoritative U.S. GAAP. During the year ended December 31, 2019, adjustments due to changes in estimates were necessary based on actual product returns experience, resulting in a decrease of $25.3 million, to the product returns reserve and a corresponding benefit to the net product sales recognized.