Bad Debt Provision

Objective ：

There is always a tendency that some of the credit given out by the Hotel will be uncollectible and turned bad, whether it be due to insolvency or otherwise.  Thus it is necessary in any accounting practice that a monthly provision is made for this type of case.

There are times whereby a debt after having been written off will be recovered after some time.  The accounting treatment for this recovery needs to be addressed.

Procedure ：

Provision for Bad Debt  

A monthly provision must be made to the books to provide for possible bad debts, and the magnitude of provision will be based on a reasonable percentage on the overall receivables.

Head Office guide : 

40%   from aging over 121 – 150 days

50%   from aging over 151 – 180 days

70%   from aging over 181 – 360 days

90%   from aging over 361 -  720 days

100% from aging over 721 days

Write-off for Bad Debt  

1. Any actual bad debts realized must be written off against this provision, only after the write-off is officially approved.

Bad debt write off with amount less than USD2,000 (RMB16,000 equivalent) can be approved by GM and Director of Finance and Business Support at the recommendation of the Credit Manager after following proper collection procedures. 

For those write-offs that is more than USD2,000 the guidelines and procedures stipulated in the Hotel Accounting Manual apply.

2. All write-offs must be properly documented and supported before sending to the respective offices for approval, and once approved must be filed separately in case of tax or other queries. 

3. At the end of the fiscal year, the balance in this account will be evaluated against the receivables at that point of time, and if it falls short of the reasonable standardized percentage of the total receivables, then the difference should be provided for.  Vice versa, if there is an over provision on the amount, the difference will have to be reversed back against to credit expenses. 

If the write-off recovered, then it should be rightly be the reversal of entries as with the original entries. (Debit: Accounts Receivable, Credit: Allow-Doubtful Accounts; and same time will debit to Bank, credit to Accounts Receivable.)