What Is Accounting Insolvency?

Bankruptcy accounting is significantly different from normal business accounting. As far as the procedure for corporate bankruptcy is concerned, it belongs to the legal category; but as far as its content is concerned, it is mainly about accounting management issues.

Bankruptcy accounting

It is not difficult to see from the bankruptcy process that the corporate bankruptcy process mainly includes two stages: reconciliation and rectification and bankruptcy and liquidation, involving debtors (ie, reconciliation and rectification of enterprises or bankruptcy and liquidation enterprises, the same below), creditors (represented as creditors' meetings), liquidators (represented For the bankruptcy and liquidation group of the company), he has three main stakeholders. During the period of reconciliation and rectification, the debtor is still engaged in production and business activities, performs capital circulation and turnover as usual, and prepares accounting statements on a regular basis. Second, at the beginning of the bankruptcy liquidation period, after the liquidator took over the bankrupt enterprise, in order to protect the legitimate rights and interests of creditors. An affirmative decision should be made in favor of creditors' reprocessing of work in progress and the continuation of certain contracts. The basis is that the net income of reprocessing or performance of the contract must be greater than the income from the immediate sale of the product or paid for termination of the contract. The amount of compensation to the other party to the contract will naturally result in the conversion of the form of funds in the reprocessing of the product and the performance of the contract. Third, after the product continues to be processed and the contract continues to be performed, the liquidator should adjust its cash assets, settle its debts, and distribute the remaining assets, so as to realize the conversion of physical objects into money. Obviously, the movement of funds during bankruptcy and settlement is objective, but the movement of funds here cannot form a turnover of funds, but has the characteristics of simple, one-time and finalization. This unique fund movement of bankrupt enterprises constitutes the research object of bankruptcy accounting management. It is one of the important tasks of bankruptcy accounting management to strive to accelerate the bankruptcy fund movement and maximize the debtor's debt ratio, thus forming its unique characteristics. Accounting goals.

The corporate bankruptcy process involves three aspects: debtor, creditor and liquidator. The main work of the debtor's accounting is to prepare a draft settlement agreement and corporate rectification plan, report to the people's court the debt and debt inventory and financial statement of status, perform accounting during the reconciliation and rectification, and regularly provide creditor meetings with corporate rectification accounting information and conduct the rectification period. Financial forecasting, financial decision-making, financial control and financial analysis, increase the creditor's debt compensation ratio, promote the realization of the settlement agreement, and get rid of the bad luck of bankruptcy declaration. The main work of the liquidator's accounting is to carry out the accounting management of the continuous processing business of the bankrupt enterprise, define, evaluate, and realise the bankruptcy property, settle various debts, strive to increase the realizable value of the property, and report to the creditors' meeting and the people's court on the progress of liquidation . The main work of creditor accounting is to review and rectify the settlement agreement and rectification plan of the company, monitor its implementation progress, prompt and correct the debtor's unreasonable and even detrimental to creditor's economic behavior; secondly, review the liquidator's liquidation plan and supervise The implementation of the liquidation plan, reviewing the rationality and effectiveness of bankruptcy expenses, judging the scientificity and rationality of property valuation and realization, evaluating the legality of the debt repayment order, and effectively safeguarding the legitimate rights and interests of all creditors. It can be seen that bankruptcy accounting is made up of a trinity of debtor accounting, liquidator accounting, and creditor accounting. Although their respective service objects and services are not the same, their goals are concentrated on increasing the creditor's debt compensation ratio and maintaining the legality of creditors and debtors. In terms of equity, this is the fundamental difference from normal corporate accounting goals, which in turn constitutes its unique accounting goals:

1. Provide bankruptcy accounting information to relevant parties in a timely, objective and truthful manner;

2. Scientifically carry out bankruptcy accounting forecasting, decision making, planning, control, assessment and analysis;

3. Protect the security and integrity of the debtor's property and increase the realizable value of the property;

4. Supervise the legality and effectiveness of the implementation of bankruptcy procedures, strive to improve economic efficiency (increasing the proportion of creditors' debts to debts), and safeguard the legitimate rights and interests of creditors.

The accounting assumptions of conventional financial accounting include the accounting entity, continuing operations, accounting instalments, and currency measurement. Because the external socioeconomic environment of bankruptcy accounting is different from conventional financial accounting, its accounting assumptions have also changed.

1. Impact on accounting entity assumptions.

Accounting entity assumptions provide a basis for determining and measuring the economic resources and business activities of any particular enterprise, and also provide a basis for standardizing the scope of measurement and reporting. After the company filed for bankruptcy, it continued to operate and was not legally declared to terminate its business activities. Therefore, the main body of the enterprise was still the original one. When the enterprise enters the stage of reconciliation and rectification, it also carries out self-rescue activities in its original identity. At this time, there is no substantial change in the property, name, organization, and place of the enterprise, and the accounting entity has not yet changed substantially. But after the company declared bankruptcy, the situation changed fundamentally. The enterprise will be taken over by the liquidator, and the enterprise actually lost the right to manage and dispose of its own assets. All custody, liquidation, valuation, processing and distribution will be the responsibility of the liquidator, and the liquidator will come forward to perform necessary civil activities and bear civil liabilities on behalf of the enterprise. It should be noted that during bankruptcy liquidation. As the corporation as a legal person has existed in name, the measurement basis and the entity of the measurement object on which the accounting entity of the enterprise relies has died, and the accounting entity in the original sense naturally ceases to exist.

2. Impact on going concern assumptions.

The going concern assumption is the starting point for formulating accounting principles and choosing accounting methods, such as corporate property measurement. Expense allocation and depreciation accrual are based on this assumption. Although the accounting entity has undergone substantial changes during the bankruptcy liquidation stage, the accounting entity still exists, while other assumptions are directly impacted by bankruptcy. In other words, once the company declares bankruptcy, it fundamentally changes the basis of the continuity operation assumption. The company shifts from normal operation to liquidation, and requires accountants to adopt the concept of liquidation instead of the view of continuing operations. Bankruptcy accounting no longer serves the company's normal production and operation decisions and investors' investment decisions, but mainly serves existing creditors (including relevant government departments) and corporate bankruptcy settlement agencies.

3. Impact on accounting staging and monetary measurement assumptions.

Both the accounting staging and currency measurement assumptions are based on the assumption of continuing operations. As the bankruptcy liquidation fundamentally changes the going concern assumption, it directly affects the accounting period assumptions and currency measurement assumptions. In bankruptcy liquidation, although it is still necessary to use currency to measure the assets of the bankrupt enterprise and the economic business activities of the liquidator, the measurement attribute that must be used for bankruptcy accounting is the current liquidation price. Because the current liquidation price is unstable, it is to a certain extent The upward shaken the assumption of stable market value. It should be particularly pointed out here that in the field of bankruptcy accounting, the direct impact of monetary measurement properties is transient. The accounting staging assumption is based on the need for management and control of the social reproduction process. Once the company goes bankrupt, it enters the bankruptcy liquidation stage, at this time. The normal production and operation activities of the enterprise have been terminated, and it is not necessary to divide the accounting period, so the accounting period has virtually ceased to exist.

The general principles of accounting are the basic requirements for accounting. Accounting assumptions are the basis of accounting theory and the basis for formulating accounting principles and methods. The accounting assumptions of bankruptcy accounting are quite different from those of conventional financial accounting, so their accounting principles and accounting methods must also be quite different. Some principles of conventional financial accounting. For example, the accrual principle, matching principle, prudence principle, historical cost principle, and the principle of dividing profitable expenditures and capital expenditures are the principles that must be followed by financial accounting under the condition that the enterprise continues to operate normally. Obviously these six principles This principle no longer applies to bankruptcy accounting. The other six principles, namely the principle of objectivity, the principle of relevance, the principle of comparability, the principle of consistency, the principle of timeliness, the principle of clarity, are mainly the requirements for the quality of accounting information, the principle of regulating accounting information, and bankruptcy accounting The goal is to provide accounting information to relevant parties, so this part of the principle still applies to bankruptcy accounting.

Due to some special accounting content of bankruptcy accounting and the special requirements of information users, some new accounting principles are needed to replace the conventional accounting principles that are no longer applicable, such as the use of the cash-based system to replace the accrual system and the liquidation price The principle replaces the historical cost principle, and the comprehensiveness principle replaces the importance principle. The special principles of bankruptcy accounting are discussed as follows:

1. The principle of realization of payment.

The collection and payment realization system refers to an accounting method that determines the income and expenses of an accounting unit based on whether the payment has been collected and paid according to the collection and payment period. Under the principle of cash on payment, all income received and expenses paid during the current period, whether or not they belong to the current period, are treated as income and expenses during the current period. The proceeds received and the unpaid expenses shall not be treated as the income and expenses of the current period. Under the condition that the business is terminated, the liquidation accounting does not need to calculate the operating results of the liquidation period. There is no problem of the ratio of income and expenses. It does not need to consider accounting for advance income, advance expenses, accrued income and accrued expenses. Matters; assets must be accounted for in real money, and debts must be paid for in real terms. Therefore, the realization system of payment is the normative principle of the basic methods of bankruptcy accounting confirmation, measurement and reporting.

2. Liquidation price principle

The principle of liquidation price means that in the process of confirmation, measurement and reporting of bankruptcy and liquidation business, the liquidation accountant must use the liquidation price as the basic value standard, the value of assets must be calculated according to the actual realized value, and the liabilities must be calculated according to Affordability to repay. Under the condition of continuing operations, the valuation of assets is carried out using the actual price at the time of purchase-historical cost. Because the valuation of assets at this time is sufficient for normal production and operation, the difference between historical costs and current market prices can be ignored. After the enterprise enters the liquidation state, the existence of such a difference will inevitably affect the liquidation process and debt settlement. It is an inevitable choice to eliminate the difference by using the liquidation price instead of the historical cost. In addition, the liquidation of debts requires the debtor to pay with actual economic resources-currency or currency equivalents, currency obtained through the realization of assets, and currency equivalents must be reasonably valued. These must be performed at the liquidation price. Financial statements that reflect the liquidation business process also It needs to be prepared with the help of liquidation prices.

3. Comprehensiveness

The principle of comprehensiveness means that bankruptcy accounting should fully and completely reflect all aspects of liquidation activities, comprehensively reflect the source of funds, whereabouts and the bankruptcy profit and loss during the bankruptcy period, and must not be hidden or omitted. The specific requirements are mainly two aspects: from the perspective of the enterprise, accounting information must fully reflect the business situation; from the perspective of accounting service objects, accounting information must be able to fully meet the requirements of information users. To meet the requirements of the above two aspects, accounting must first scientifically design and select a clearing accounting report system, report content and reporting method, because the use of conventional accounting report system, report content and reporting method cannot meet bankruptcy. In the state of liquidation, full disclosure of information is required. The content of bankruptcy accounting is relatively simpler than conventional accounting, and it also provides conditions for implementing the principle of comprehensiveness. For example, bankruptcy accounting no longer requires cost allocation and product cost accounting. The accounting for bankruptcy gains and losses is more than that for corporate production and operation. It's also much simpler.

Bankruptcy accounting differs significantly from normal business accounting in the following ways:

1. Basic accounting assumptions are different.

The takeover of the bankruptcy by the liquidation team means that the management or acceptance of all matters of the bankrupted company has been changed. The accounting subject assumptions, continuing operations assumptions and accounting staging assumptions under normal operating conditions are no longer applicable to the bankruptcy liquidation stage. There is no way to talk about continuing operations when an enterprise goes bankrupt; the qualifications of the corporate entity before the bankruptcy have been completely lost, and the accounting entity has been replaced by a liquidation team that serves bankrupt enterprises, creditors and people's courts with different requirements. Although China's law does not explicitly stipulate the liquidation group as an independent legal subject, from the perspective of the rights and obligations established by the bankruptcy law for the liquidation group, it seems that the liquidation group can be an independent legal subject from the date the enterprise is declared bankrupt to The end of the bankruptcy liquidation procedure can be regarded as the bankruptcy accounting period. This period is uncertain, and it depends on the liquidation team's liquidation progress of the bankrupt enterprise. Due to the uncertainty of the bankruptcy accounting period, resulting in the randomness of the preparation of the interim bankruptcy accounting statements. If the bankruptcy accounting period is long, the interim bankruptcy accounting statements should be prepared at a certain stage of liquidation, otherwise, the final period will be announced directly at the end of the bankruptcy liquidation process. Liquidation results.

2. Accounting content is different.

After the liquidation team enters the enterprise, it is responsible for the custody, valuation, realization, and debt settlement of all the assets of the bankrupt enterprise, so that the accounting content of the bankruptcy account is completely different from the accounting content of normal business accounting, mainly including: accounting for takeover, Accounting for bankruptcy property, accounting for bankruptcy expenses and accounting for bankruptcy claims.

3. The status of accounting entities is different.

The liquidation team of a bankrupt enterprise is generally an outsider of the enterprise. They not only serve the bankrupt enterprise, but also creditors and the people's court. They must not only safeguard the interests of the bankrupt enterprise, but also ensure the rights and interests of creditors. Therefore, The liquidation team has a certain neutral position.

4. Some accounting principles are different.

The "Enterprise Accounting Standards" stipulates 12 general principles of accounting, including the principles of objectivity, relevance, comparability, consistency, timeliness, and clarity, which are mainly requirements for the quality of accounting information. Although the accounting content of bankruptcy accounting is different from the accounting content of normal business accounting, the requirements are the same in terms of the quality of accounting information, so these six principles still apply to bankruptcy accounting; as for the accrual principle, matching principle, The principle of prudence, the principle of historical costs, the principle of dividing profitable and capital expenditures, and the principle of importance are mainly based on the assumptions of the company's continuing operations and accounting instalments. Since the assumption of continuing operations in the bankruptcy liquidation phase no longer exists Moreover, the accounting period assumption has also lost its original meaning. These six principles have also lost their basis of existence, and new accounting principles compatible with the valuation and realization of bankruptcy properties have emerged, namely, the principle of realizing payment and re-establishment. Cost principle. The principle of realizing income and payment means that the actual receipt or actual payment of cash should be used as the standard for determining the income and expenditure during the bankruptcy and liquidation stage; the replacement cost principle means that the liquidation team's valuation of the bankruptcy property cannot be based on historical cost as the standard for confirmation , But should be confirmed based on the current market price.