Accounting methods for bad debt losses include direct write-off method and allowance method. Among them, the direct write-off method refers to directly debiting "management expenses" and crediting "accounts receivable" when bad debt losses actually occur. This method is simple in accounting and does not need to set up the subject of "bad debt provision", but its disadvantage is that it does not conform to the accrual basis and matching principle.
Differences in write-off procedures for bad debt losses
In terms of accounting, the Accounting System for Business Enterprises stipulates that an enterprise may write off the bad debt reserves that have been accrued with the approval of the shareholders' meeting or the board of directors, or the manager's (factory director's) meeting and other similar institutions according to the management authority of the enterprise.
However, in terms of tax law, the Administrative Measures for Pre-tax Deduction of Enterprise Property Losses (Guo Shui Fa 190) clearly stipulates that property losses without the approval of the tax authorities shall not be deducted before tax. In actual operation, generally according to the approved amount, the county (city, district), province and State Administration of Taxation shall approve or put on record step by step, and the specific amount shall be determined by the provincial tax bureaus.