If the prepayments can't be recovered, according to Article 4 of the Notice of the Ministry of Finance of State Taxation Administration of The People's Republic of China on Pre-tax Deduction Policy for Enterprise Asset Losses (Caishui [2009] No.57): "If the accounts receivable and prepayments of an enterprise except loan creditor's rights meet the following conditions, the unrecoverable accounts receivable and prepayments confirmed after deducting the recoverable amount can be deducted as bad debt losses when calculating taxable income. When extracting provision for doubtful debts

Debit: asset impairment loss-provision for bad debts,

Loan: bad debt reserve.

When bad debts actually occur,

Debit: bad debt reserve,

Credit: advance payment.