In the accounting of Hong Kong company and the audit business of Hong Kong company, customers often ask me how to deal with the receivables that I really can't get back. In this case, it may involve the provision of bad debt losses. As for bad debt losses, there are also special provisions when profits tax is deducted.

In the accounting process of the Hong Kong company, the client said that the annual collection of accounts receivable was ignored and not paid. In this case, when issuing the audit report, the auditor would ask the client to set aside bad debt losses, which would affect the company's profits. Such bad debt losses could not be deducted before tax in the calculation of profits tax, and the auditor would make tax adjustment. Because such collection does not go through normal legal procedures (such as litigation, arbitration) is not deductible before tax.

If the debtor carries out practical recovery actions such as bankruptcy liquidation or filing a lawsuit against the debtor and fails to recover the relevant money, then bad debts can be set aside at the time of accounting and pre-tax deduction can be made in the relevant tax year based on the bankruptcy liquidation certificate and court judgment.

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