an enterprise should set up an account of "bad debt reserve" to account for the bad debt reserve withdrawn by the enterprise. An enterprise shall regularly or at least at the end of each year, conduct a comprehensive inspection of the accounts receivable, predict the possible bad debts of various accounts receivable, and make provision for bad debts for accounts receivable that are not sure to be recovered.
the method of drawing bad debt reserve is determined by the enterprise itself. An enterprise shall make a list, specifically indicating the scope of provision for bad debts, the method of withdrawal, the division of aging and the proportion of withdrawal, which shall be approved by the shareholders' meeting or the board of directors, or the manager's (factory director's) meeting or similar institutions according to the management authority, reported to the relevant parties for the record in accordance with the provisions of laws and administrative regulations, and kept at the company's location for investors' reference. Once the extraction method of bad debt reserve is determined, it shall not be changed at will. If changes are needed, they should still be submitted to the relevant parties for the record according to the above procedures after approval, and explained in the notes to the accounting statements.
when determining the proportion of provision for bad debts, an enterprise should make a reasonable estimate based on the past experience of the enterprise, the actual financial situation and cash flow of the debtor unit and other relevant information. Unless there is conclusive evidence that the receivable cannot be recovered, or it is unlikely to be recovered (such as the cancellation of the debt unit, bankruptcy, insolvency, serious cash flow shortage, serious natural disasters, etc., which lead to the suspension of production and the inability to pay off debts in a short time, and the receivable is overdue for more than 3 years), the provision for bad debts cannot be fully accrued in the following situations:
(1) Accounts receivable that occurred in the current year.
(2) Plan to reorganize the accounts receivable.
(3) Accounts receivable with related parties.
(4) Other accounts receivable that are overdue but cannot be recovered with conclusive evidence.
if there is conclusive evidence that the unexpired notes receivable held by an enterprise cannot be recovered or are unlikely to be recovered, the book balance should be transferred to accounts receivable, and the corresponding bad debt reserve should be accrued.
if there is conclusive evidence that the prepayments of an enterprise do not conform to the nature of prepayments, or there is no hope of receiving the purchased goods due to the bankruptcy or cancellation of the supplier, the amount originally included in prepayments should be transferred to other receivables, and corresponding bad debt reserves should be accrued.
an enterprise should find out the reasons for uncollectible accounts receivable and investigate the responsibilities. For the accounts receivable that are irrecoverable with conclusive evidence, such as the debt unit has been revoked, bankrupt, insolvent, and the cash flow is seriously insufficient, according to the management authority of the enterprise, it is approved by the shareholders' meeting or the board of directors, or the manager (factory director) office meeting or similar institutions as bad debt losses, and the withdrawn bad debt reserve is written off.
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