What Are Bad Debts And How To Deal With Bad Debts?

Bad debts are accounts receivable that enterprises can not recover.

It is a normal phenomenon that bad debts happen and bad debts are lost.

In accordance with the relevant regulations of China, the accounts receivable of enterprises should be recognized as bad debts if they meet one of the following requirements: (1) because the debtor's death is still unrecoverable after the repayment of his estate; second, because the debtor is bankrupt, he can still not recover after the liquidation of his bankrupt property; third, the debtor has not fulfilled the debt paying obligation in a longer period (such as more than 3 years), and there is enough evidence that the possibility of uncollectible or recovery is minimal.

The enterprises should regularly check their receipts and check the receipts at regular intervals or less than the end of each year. They are expected to have bad debts. They should prepare bad debts for those who fail to grasp the receivables they can recover.

Enterprises can only calculate the loss of bad debts by the reserve method.

The method of calculating bad debt reserves includes percentage percentage method, age analysis method, percentage sales method and so on.

The enterprise shall list its contents, specify the scope of the provision for bad debts preparation, the method of extraction, the division of the age of the accounts and the proportion of the withdrawal, and shall be approved by the shareholders' meeting or board of directors or the manager or director of the similar institution in accordance with the authority of administration, and shall report to the parties concerned for the record in accordance with the provisions of laws and administrative regulations, and be placed in the place where the company is located for investors to inspect.

The method of preparing bad debts is not allowed to be changed as soon as it is determined.

In case of change, it shall still be submitted to the parties concerned for approval after the approval of the above procedures, and shall be explained in the notes to the accounting statements.

When deciding the proportion of bad debt reserve, the company should reasonably estimate the company's past experience, the actual financial position and cash flow of the debt unit, and other relevant information.

Accounts receivable cannot be recovered or the possibility of recovery is not large (such as cancellation of debt units, insolvency, insolvency, serious cash flow shortage, serious natural disasters, etc.), and debt receivable in a short time, and receivables overdue for more than 3 years. Generally, the provision for bad debts can not be fully prepared in the following circumstances: (1) the receivables that happened in the year; (2) plans to restructure the receivables; (3) and the receivables associated with Fang Fasheng; and (4) other receivables which have been overdue but have no conclusive evidence to prove that they can not be recovered. In addition to conclusive evidence,

If an unearned receivable bill held by an enterprise is not likely to be recovered or withdrawn if there is conclusive evidence, it should pfer its book balance to the accounts receivable and prepare the corresponding provision for bad debts.

If the prepaid account of a company has no conclusive evidence that it does not conform to the nature of the prepaid account, or has no hope of receiving the purchased goods again because of the bankruptcy or cancellation of the supplier, it should pfer the original amount into the other receivables and prepare the corresponding provision for bad debts.

The enterprises should identify the reasons for the unrecoverable accounts receivable and investigate their responsibilities.

For receivables that have irrefutable evidence that they can not be recovered, such as debt cancellation, bankruptcy, insolvency, serious shortage of cash flow, etc., according to the management authority of the enterprise, the shareholders' meeting or board of directors or the manager (factory director) office or similar institution may approve the provision for bad debts and write off the bad debts.