What Is First Loss?

Bad debt loss refers to the part of the company's uncollected accounts receivable that is included in the loss upon approval. Enterprises withdrawing bad debt provisions also reflect in this account that when bad debts occur, they directly offset the bad debt provisions. For companies that do not make provision for bad debts, when bad debts occur, they are directly accounted for in this account. ^[1]

Bad debt loss

Bad debt loss refers to the part of the company's uncollected accounts receivable that is included in the loss upon approval. Enterprises withdrawing bad debt provisions also reflect in this account that when bad debts occur, they directly offset the bad debt provisions. For companies that do not make provision for bad debts, when bad debts occur, they are directly accounted for in this account. ^[1]

A stroke

Bad debt losses accrued for the first time

At the time of the first accrual, the amount of accrual for bad debt provision = year-end balance of accounts receivable × accrual ratio.

Example 1: Changxing Company made provision for bad debts for the first time in 1996. At the end of the year, the balance of accounts receivable was 100,000 yuan, and the proportion of provision for bad debts was 5%. .

Borrow: Asset impairment loss 5000

Loan: Bad debt provision 5000

Annual provision for bad debt losses

When accruing bad debt provisions in future years, it can be divided into three steps: The first step is to determine the credit balance that should be maintained in the bad debt provision account. ; The second step is to determine the balance of the "bad debt reserve" account in advance; set to b;

Bad debt loss

In three steps, compare the sizes of a and b. The results of the comparison are three cases: replenishment, write-off, neither replenishment or write-off.

Example 2: In October 1997, Changxing Company actually suffered a bad debt loss of 4,000 yuan; the balance of accounts receivable at the end of the year was 120,000 yuan.

October 1997

Borrow: Bad debt provision 4000

Credit: Accounts receivable 4000

End of 1997

The "bad debt reserve" account lender should keep the balance = 120,000 x 5% = 6000 (yuan); the balance of the "bad debt reserve" account (credit) = 5000-4000 = 1000 (yuan) in advance; therefore, an additional 5,000 yuan should be added.

Borrow: administrative expenses 5000

Loan: Bad debt provision 5000

If this example, Changxing Company actually suffered a bad debt loss of 6,000 yuan in October 1997, other conditions remain unchanged. then:

October 1997

Borrow: Bad debt provision 6000

Credit: Accounts receivable 6000

End of 1997

The "bad debt reserve" account lender should keep the balance = 120,000 x 5% = 6000 (yuan); the balance of the "bad debt reserve" account in advance (debit) = 6000-5000 = 1000 (yuan); therefore, an additional 7,000 yuan should be added.

Borrow: Management expenses 7000

Loan: Bad debt provision 7000

Example of bad debt loss : In October 1998, the bad debt loss recognized by Changxing Company last year was 4,000 yuan and recovered; the balance of accounts receivable at the end of the year was 150,000 yuan. October 1998

Borrow: Accounts receivable 4000

Loan: bad debt provision 4000

Borrow: bank deposit 4000

Bad debt loss

loan

Credit: Accounts receivable 4000

End of 1998

The "bad debt reserve" account lender should maintain the balance = 150000 x 5% = 7500 (yuan); the "bad debt reserve" account balance (credit) = 6000 + 4000 = 10000 (yuan) in advance; therefore, 2500 yuan should be written off.

Borrow: Bad debt provision 2500

Loan: Administrative expenses 2500

Example 4: In August 1999, Changxing Company actually suffered a bad debt loss of 3,500 yuan; the balance of accounts receivable at the end of the year was 80,000 yuan.

August 1999

Borrow: Bad debt provision 3500

Credit: Accounts receivable 3500

Late 1999

The "bad debt reserve" account lender should keep the balance = 80,000 x 5% = 4000 (yuan); the "bad debt reserve" account balance (credit) = 7500-3500 = 4000 (yuan) in advance; therefore, neither make up nor write off, That is, no accounting treatment is required.

To sum up, when using the year-end balance percentage method to make provision for bad debts, one must always grasp the principle that after the provision for bad debts is made in the current year,

Bad debt indicator

, It is necessary to keep the equation of credit balance of bad debts ÷ year-end balance of accounts receivable = accrual ratio established. In addition, regarding the allowance method, we should also pay attention to the following points:

(1) When a listed company adopts the allowance method, its specific method and accrual ratio are determined by the company itself;

(2) Bad debt provision for other receivables of listed companies, and bad debt provision for bills receivable according to the new accounting standards;

(3) Prepayments should be made for bad debts in accordance with the new accounting standards;

(4) In the case where the advance account is registered in the accounts receivable account, the base on which the provision for bad debts is made shall exclude the advance account factor;

(5) The principle of the year-end balance percentage method introduced above can be extended and further applied to deposits.

Bad debt loss

Provisions for depreciation of goods, provision for short-term investment depreciation, and provision for long-term investment impairment.