What Is an Allowance for Bad Debt?

Provision for bad debts refers to the provision of receivables (including accounts receivable, other receivables, etc.) of an enterprise, which is an allowance account. The company adopts allowance method for the calculation of bad debt losses. Under the allowance method, companies should estimate the bad debt losses at the end of each period and set up a bad debt provision account. Allowance method refers to the use of a certain method to estimate bad debt losses on a regular basis (at least at the end of each year), withdraw bad debt provisions and convert them into current expenses; when bad debts actually occur, directly write down the bad debt provision, and resell the corresponding receivable A method of processing balances.

Provision for bad debts

Enterprises should set up "bad debt preparation"

Bad debt reserve is the bad debt reserve drawn by an enterprise for receivable prepayments such as bills receivable, accounts receivable, prepayments, other receivables, and long-term receivables that may not be recoverable.

The method for accruing bad debt provision is reasonably estimated by the enterprise based on historical experience, the financial situation of the debt unit and related information, and the catalogue and withdrawal ratio are proposed for implementation by the enterprise's board of directors.

The provision for bad debts is calculated through the "bad debts reserve" account. At the end of the year, the enterprise should conduct a comprehensive inspection of the accounts receivable. If any receivable is expected to be impaired, it should make provision for bad debts. Its account processing is as follows:

1. When withdrawing bad debt provisions, the enterprise should debit "credit impairment losses-accruing bad debt provisions"; credit "bad debt provisions". (1) If the amount of bad debt provision that should be accrued in the current period is greater than the book balance of bad debt provision, it shall be accrued based on the difference, debiting "credit impairment loss-accruing bad debt provision"; crediting "bad debt provision". Application Guidelines for Accounting Standards for Business Enterprises No. 22-Recognition and Measurement of Financial Instruments (2017) (2) If the amount of bad debt provision that should be drawn is less than the book balance of "bad debt provision", the difference should be used for the opposite accounting entry. Keep a record of "bad debt provision" account; credit an account of "asset impairment loss-provision for bad debt provision" account.

2. For the receivables that are truly uncollectible, they will be treated as bad debts after being approved according to the management authority. Accounts "," prepayments "," other receivables "," long-term receivables "and other accounts.

3. When the receivables that have confirmed the loss of bad debts and resold them are recovered in whole or in part in the future, the "receivables", "bills receivable", "prepayments", Accounts such as "other receivables" and "long-term receivables" are credited to the "bad debt preparation" account; at the same time, accounts such as "bank deposits" are debited; accounts such as "receivables" are credited.

The auditor should use the review method and review method to check the year-end balance of the "accounts receivable" account and the "

Specifically, there are four methods for accruing bad debt provision: namely, the "balance percentage method", "age analysis method", "sales percentage method", and "individual identification method".

(1) Balance percentage method

This is a method of estimating bad debt losses based on a certain percentage of the balance of accounts receivable at the end of the period. The percentage of bad debts is determined by the enterprise itself based on previous information or experience. Under the balance percentage method, at the end of each accounting period, the company should estimate the balance of the bad debt reserve account at the end of the current period based on the balance of the current account receivable and the corresponding bad debt ratio. The difference is the amount of bad debt provision that should be made in the current period.

The calculation formula for the provision of bad debts using the balance percentage method is as follows:

1. Calculation formula for the first provision for bad debts:

Provision for bad debts accrued for the current period = Balance of accounts receivable at the end of the period × Percentage of provision for bad debts

2. Calculation formula for bad debt provision in the future:

Provision for bad debts accrued for the current period = Calculated amount of bad debts accrued based on accounts receivable for the current period + (or-) Debit balance (or credit balance) of bad debt provision accounts

(Two) aging analysis method

This is a method of estimating bad debt losses based on the age of accounts receivable. Generally speaking, the longer the age of accounts receivable, the greater the possibility of bad debts. To this end, the company's receivables are grouped according to age, and different withdrawal percentages are determined to estimate the bad debt loss, so that the calculation result of the bad debt loss is more in line with the objective situation.

The formula for calculating bad debt provision by aging analysis method is as follows:

1. Calculation formula for the first provision for bad debts:

Provision for bad debts accrued for the current period =

2. The formula for calculating the provision for bad debts in the future:

(Three) sales percentage method

This is a method of estimating bad debt losses based on a certain percentage of a company's total sales. The percentage is determined based on the relationship between the actual bad debts and total sales of the company in the past, combined with changes in production operations and sales policies. In actual work, enterprises can also estimate bad debt losses based on the percentage of credit sales.

The calculation formula for the provision of bad debts using the sales percentage method is as follows:

Provision for bad debts in the current period = Total sales (or credit sales) for the current period × Provision for bad debts

It can be seen that when using the sales percentage method, when determining the amount of bad debt reserve to be provided in each year, it is not necessary to consider the existing balance on the bad debt reserve account. From the perspective of the income statement, since this method mainly estimates the current bad debt loss based on the sales revenue figures on the current income statement, the bad debt costs can be well matched with the sales revenue, which is more in line with the concept of ratio. However, because the previous original balance of the bad debt reserve account was not taken into account when accruing bad debts, if the estimation of bad debt losses occurred in previous years, it cannot be automatically corrected, and the net receivables on the balance sheet may not be correct. Reflects its realisation value. Therefore, the sales percentage method should also be used to regularly evaluate whether the bad debt provision is appropriate and make adjustments in a timely manner so as to more reasonably reflect the financial status of the enterprise.

Provision for bad debts that should be drawn for the current period = Calculate the amount of bad debts that should be drawn for the current period based on receivables-the credit balance of the "bad debt provision" account.

The amount of bad debt provision that is calculated based on receivables in the current period is greater than the credit balance of the "bad debt provision" account, and the bad debt provision should be drawn based on the difference; if the amount of bad debt provision that is calculated based on the receivable is less than the "bad debt provision" account The credit balance shall be offset against the bad debt provision that has been accrued according to the difference; if the amount of bad debt provision that is calculated based on the receivable is zero, the balance of the "bad debt provision" account shall be fully written back.

When an enterprise withdraws bad debt reserves, it debits the "asset impairment loss" account and credits the "bad debt reserve" account. If the bad debt provision that should be withdrawn in this period is greater than its book balance, it should be drawn based on the difference; the difference that should be withdrawn less than the book balance should be debited to the "bad debt provision" account and credited to the "asset impairment loss" account.

For receivables that are truly uncollectible, the company approves them as bad debt losses, writes off the bad debt provision withdrawn, debits the "bad debt provision" account, and credits "receivables", "other receivables" and other subjects.

The bad debt loss that has been confirmed and resold, if it is recovered later, debit "Accounts receivable", "Other receivables" and other subjects according to the actual amount recovered, and credit the "Bad debt provision" account; at the same time, debit "

Check corporate bad debt losses

I. Accounting for bad debts of accounts receivable of enterprises.
2. Detailed accounting can be performed according to the category of receivables.
3. The main steps of accruing bad debt provision.
(1) On the balance sheet date, if the receivable is impaired, debit the "credit impairment loss" account according to the amount to be deducted ^[1]

General tax adjustment methods

First calculate and determine the amount of bad debt provision for the year to be deducted or included in the total profit in accordance with the accounting system requirements, and then calculate the amount of bad debt losses (including bad debt provisions, the same below) that can be deducted in the current year in accordance with the tax law. Both

Other receivables refer to all kinds of receivables other than bills receivable, accounts receivable and prepaid accounts,

Differences between bad debt treatment and tax treatment

The purpose of accounting standards is to provide users of accounting information with real and complete financial information, while the purpose of tax law is mainly to ensure the country's fiscal revenue and use tax leverage for macro-control. Due to their different purposes, there must be some differences in the principles they follow. Differences in purpose lead to differences in accounting and tax law's treatment of bad debt provisions. The author compares the differences between the accounting treatment and the tax treatment of "bad debt preparation" in terms of the method , scope , amount , and proportion of bad debt provision.

Method for accruing bad debt provision

According to the "Accounting Standards for Business Enterprises", the allowance method should be adopted for the calculation of corporate bad debt losses, and the method for accruing bad debt provisions should be determined by the enterprise itself. Bad debt provisions can be accrued according to the balance percentage method, aging analysis method, and credit sales percentage method You can also determine the provision for bad debts according to customers.

And the "Enterprise Income Tax Deduction Measures" Guoshuifa [2000] No. 84 (hereinafter referred to as the "Measures") and "Notice on the Implementation of the" Enterprise Accounting System "and the Relevant Notices on Income Tax Issues Needed to Be Clear" Guoshuifa [2003] No. 45 (below (Referred to as the Notice) stipulates that the allowance for bad debts that can be deducted before corporate income tax must, in principle, follow the principle of true deductions. The withdrawal of bad debts by the enterprise is based on the percentage method of the balance of accounts receivable at the end of the year. Except for the bad debt reserve drawn from 5 of the balance of the balance, the bad debt reserve drawn by the enterprise according to the financial accounting system and other provisions exceeding the national tax regulations shall not be deducted before corporate income tax. Specifically, there are four methods for accruing bad debt provision: namely, the "balance percentage method", "age analysis method", "sales percentage method", and "individual identification method". (1) Balance percentage method

The calculation formula for the provision of bad debts using the balance percentage method is as follows:

1. Calculation formula for the first provision for bad debts:

Provision for bad debts accrued for the current period = Balance of accounts receivable at the end of the period × Percentage of provision for bad debts

2. Calculation formula for bad debt provision in the future:

Example: Taishan Enterprise's balance of accounts receivable at the end of 2006 was 800,000 yuan, and the company estimated that the proportion of withdrawal of bad debt provision based on risk characteristics was 0.4% of the balance of accounts receivable. Bad debts of 4,000 yuan occurred in 2007, and the balance of accounts receivable at the end of the year was 980,000 yuan. In 2008, a bad debt loss of 3,000 yuan was recorded, and 2,000 of the account written off in the previous year were recovered again this year. The balance of accounts receivable at the end of the year was 600,000 yuan. Assume that the bad debt reserve account has a balance of zero at the beginning of 2006.

Requirement: Calculate bad debt provision for each year and prepare accounting entries.

Solution: (1) Provision for bad debts in 2006 = 800 000 × 0.4% = 3 200 (yuan)

According to the above calculation results, the following accounting entries should be prepared:

Borrow: asset impairment loss 3 200

Loan: Bad debt provision 3 200

When bad debt losses occur in 2007, the following accounting entries should be prepared:

Borrow: bad debt provision 4 000

Credit: Accounts receivable 4 000

(2) The balance of the bad debt reserve account before bad debt accrual at the end of 2007 is: 4 000-3 200 = 800 (debit)

To make the balance of bad debt provision 980,000 × 0.4% = 3 920 (yuan), the bad debt reserve should be provided in 2007 = 3 920 + 800 = 4 720 (yuan) (credit).

Based on the above calculation results, the following accounting entries should be prepared:

Borrow: Asset impairment loss 4 720

Loan: bad debt provision 4 720

(3) When bad debt losses occur in 2008, the following accounting entries should be prepared:

Borrow: Bad debt provision 3 000

Credit: Accounts receivable 3 000

When recovering written off receivables in 2008, the following accounting entries should be prepared:

Borrow: Accounts receivable 2 000

Loan: bad debt provision 2 000

Borrow: bank deposit 2 000

Credit: Accounts receivable 2 000

The amount of bad debt provision before bad debt provision at the end of 2008 was 3920 (the ending balance of the bad debt provision account in 2008)-3 000 + 2 000 = 2 920 (yuan) (credit).

To make the balance of bad debt provision 600,000 × 0.4% = 2 400 (yuan) (credit), the bad debt provision should be written off 2 920-2 400 = 520 (yuan), that is, the bad debt provision should be withdrawn in 2008-520 yuan .

Based on the above calculation results, the following accounting entries should be prepared:

Borrow: bad debt provision 520

Loan: Asset impairment loss 520

(Two) aging analysis method

The formula for calculating bad debt provision by aging analysis method is as follows:

1. Calculation formula for the first provision for bad debts:

Provision for bad debts accrued in the current period = (end of period account receivable balance of each ageing group × accrual percentage of bad debts for each ageing group)

2. The formula for calculating the provision for bad debts in the future:

Example: Company A's bad debt reserve calculation uses the aging analysis method, and accounts for receivables that are not due, within six months overdue, and over six months overdue are estimated as bad debt losses by 1%, 5%, and 10%, respectively. The year-end balance of the company's accounts receivable as of December 31, 2007 is as follows. These receivables are divided into several portfolios based on similar credit risk characteristics, as follows:

If Company A's "bad debt reserve" account had a credit balance of RMB 60,000 at the beginning of 2007, and the bad debt loss recognized in 2007 was RMB 120, 000, Company A's provision for bad debts on December 31, 2007 was included in "asset impairment loss" What is the amount of the account?

Analysis: (1) The details of each detailed account are given in the title, according to the total debit balance of the accounts receivable details account and the total debit balance of the accounts account of advance receipts, plus other receivable details accounts The total debit balance is accrued.

(2) The debit balance of advance receipts has the nature of accounts receivable, and provision for bad debts should be made.

(3) If the company's prepaid account has conclusive evidence that it does not meet the nature of the prepaid account, or it is no longer expected to receive the purchased goods due to bankruptcy, revocation, etc. of the supplier, it should be included in the prepaid account. The amount was transferred to other receivables and provision for bad debts was made in accordance with regulations.

(4) If the unreserved bills receivables held by the enterprise have conclusive evidence that they cannot be recovered or the probability of recovery is not high, the provision for bad debts should be considered at the end of the period.

Based on the above analysis, Company A's provision for bad debts on December 31, 2007 was included in the asset impairment loss account amount = 2 000 000 × 5% + 300 000 × 10% + 1 000 000 × 1% + 400 000 × 10% + 120 000-60 000 = 240 000 (yuan).

The aging analysis method, like the balance percentage method, adjusts the original balance of the account when accruing bad debt provisions. Both of these methods estimate bad debts from the perspective of the balance sheet, focusing on the balance of bad debt provisions at the end of the period, so that the accounts receivable in the balance sheet can be more reasonably valued at the realised value. However, the accounts receivable at the end of the period are not all generated from credit sales in the current period, and may include accounts generated from sales in previous years. The bad debt expenses calculated by these two methods cannot be fully matched with the sales income of the current period. In practice, the aging analysis method also increases the cost of account processing.

(Three) sales percentage method

The calculation formula for the provision of bad debts using the sales percentage method is as follows:

Provision for bad debts in the current period = Total sales (or credit sales) in the current period × Provision for bad debts

Example: Company C's credit sales in 2006 amounted to RMB 20,000. Based on past data and experience, the estimated bad debt loss rate was 1%. At the beginning of 2006, the bad debt reserve account balance was RMB 200. Calculate the bad debt reserve that should be accrued in 2006 and the balance of bad debt reserve account at the end of 2006.

Solution: The bad debt provision that Company C should accrue in 2006 is: 20 000 × 1% = 200 yuan,

Borrow: Asset impairment loss 200

Loan: Bad debt provision 200

The balance of the bad debt reserve account at the end of 2006 was: 200 + 200 = 400 yuan.

(4) Individual recognition law

This is a method of estimating bad debt losses separately for the actual situation of each receivable. For example, the company calculates bad debts based on 5% of the accounts receivable of the unit, but if an enterprise has obvious signs of difficulty in repaying, it can use the individual recognition method for the account receivables of this enterprise to accrue bad debt reserves at 10%. or others.

Accounts receivable using the individual recognition method in the same accounting period shall be excluded from accounts receivable with other methods for making provision for bad debts.

The main characteristics of the individual identification method that are different from the balance percentage method and the sales percentage method are two aspects. One is that the basis for accruing bad debt provisions is no longer the total sales or credit sales, but the customer's credit status and solvency; Second, the ratio of accruing bad debt provisions is no longer the same for all customers who owe money, but the applicable ratio is different for different credit conditions. As long as the credit status and repayment ability of each customer is investigated clearly, and then the withdrawal ratio and the amount of arrears of each customer are determined accordingly, the provision for bad debts can be calculated.

Scope of provision for bad debts

According to the "Accounting System for Business Enterprises", the possible loss of receivables of enterprises should be provided for bad debts, including: accounts receivable and other receivables. The bill receivable itself shall not make provision for bad debts. When the recoverability of bills receivable is uncertain, it shall be transferred to the account receivable and make provision for bad debts. In general, no provision for bad debts should be made for prepaid accounts. If there is conclusive evidence that the prepaid accounts are no longer in accordance with the nature of the prepaid accounts, or due to bankruptcy and cancellation of the supplier, it is no longer expected to receive the purchased goods. , The amount originally included in the prepaid account shall be transferred to other receivables, and provision for bad debts shall be made.

The "Measures" of the tax system stipulates the scope of the provision for bad debts, which is the amount of bills receivable including receivables at the end of the year. From January 1, 2003, according to the "Notice", "for the sake of simplicity, the scope of allowance for the provision of bad debts by enterprises shall be implemented in accordance with the provisions of the" Enterprise Accounting System. " It is stipulated that the business transactions between affiliated companies shall not allow provision for bad debts.

Amount and proportion of provision for bad debts

According to Article 51 of the "Accounting System for Business Enterprises", "Enterprises shall conduct a comprehensive inspection of all assets regularly or at least at the end of each year, and reasonably predict the possible losses of each asset in accordance with the requirements of the principle of prudence. Provisions for asset impairment may be made for possible asset losses. "

The "Enterprise Accounting System" gives enterprises greater autonomy in the provision of bad debts, mainly as follows:

Firstly, the ratio is not limited, and secondly, the total amount of accounts receivable that cannot be recovered or is unlikely to be recovered is accrued. At the same time, it provides for the misuse of accounting policies: when applying the principle of prudence, enterprises must not abuse it, and cannot use the principle of prudence to make secret provisions (referring to provisions that exceed the actual loss of assets).

The "Measures" stipulates that taxpayers who can withdraw bad debt reserves, unless otherwise specified, the proportion of bad debt reserves shall not exceed 5 of the balance of accounts receivable at the end of the year.

Examples

Company A used the aging analysis method to extract bad debt reserves. At the end of 2004, the balance of accounts receivable was 50 million yuan, and the balance of bad debt provisions was 1.5 million yuan. The balance of accounts receivable at the end of 2005 was 60 million yuan, including 1 million yuan from related party transactions. The proportion of accounting for bad debt provision was 3%.

Accounting treatment: At the end of 2005, the amount of bad debt provision should be 6000 × 3% = 1.8 million yuan. Since the beginning of the bad debt provision is less than the accrued amount for the current year, the bad debt provision should be made according to the difference (180-150 = 30).

Borrow: Asset impairment loss-provision for bad debts 30

Loan: bad debt provision 30

Through the above-mentioned treatment, the year-end balance of the provision for bad debts is maintained at 1.8 million yuan accrued this year.

Tax treatment

After January 1, 2008, the new corporate income tax law provides for impairment provisions such as bad debt provisions, and risk provisions are not deductible before tax.

to sum up

Through the above example, the company's actual provision for bad debts of RMB 1.8 million in the accounting calculation was based on the balance of accounts receivable at the end of 2005. When drawing, it should be compared with the balance of bad debt provisions at the beginning of the year. When the amount is greater than the balance at the beginning of the year, the difference shall be replenished, and the reverse shall be redeemed. When calculating in accordance with the tax law, the balance of accounts receivable at the end of the year should be excluded from related party transactions to calculate the amount that should be included in the current period, and then compared with the amount provided for and included in the current period as required by the accounting system. To confirm the tax adjustment for this year.

What Is an Allowance for Bad Debt?

Provision for bad debts

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