About tax accounting of doubtful and bad debts

According to the 2021 rules, the amount of the reserve should not exceed 10% of the revenue of the reporting (tax) period. That is, when forming a reserve for doubtful debts in the current year, it must be compared with revenue determined at the end of the first quarter, half a year, nine months and calendar year.

Lawmakers decided that an entity's year-end revenue and revenue received in the first quarter of the next calendar year are significantly different. Therefore, a clarification was made according to which, starting from 2021, the amount of the created reserve for doubtful debts, calculated based on the results of the tax period, cannot exceed 10 percent of the revenue for the specified tax period. And when forming a reserve for doubtful debts during the tax period (based on the results of reporting periods), its amount now cannot exceed the larger of two values:

• 10% of revenue for the previous tax period

or

• 10% of revenue for the current reporting period.

Read also “Accounting for the provision for doubtful debts in accounting and tax accounting”

Normative base

Regulation of all issues related to the creation, accounting and write-off of the reserve for doubtful debts is carried out on the basis of the following documents:

• Federal Law “On Accounting” dated December 6, 2011 N 402-FZ as amended;
• Tax Code of the Russian Federation (Part 2) dated August 5, 2000 No. 117-FZ, as amended, entered into force on March 1, 2015;
• Regulations on accounting and financial reporting in the Russian Federation, approved by Order of the Ministry of Finance of the Russian Federation dated July 29, 1998 No. 34n;
• Accounting provisions PBU 4/99 “Accounting statements of an organization”, approved by Order of the Ministry of Finance of the Russian Federation dated July 6, 1999 No. 43n;
• Order of the Ministry of Finance dated June 13, 1995 No. 49 (as amended on November 8, 2010) “On approval of the Methodological Guidelines for the Inventory of Property and Financial Liabilities”;
• Accounting Regulations 21/2008 “Changes in Estimated Values”. Approved by order of the Ministry of Finance of the Russian Federation dated October 6, 2008 No. 106n.
• Resolution of the State Statistics Committee of Russia dated August 18, 1998 No. 88.
• Letters of the Ministry of Finance of the Russian Federation dated July 10, 2015 No. 03-03-06/39756 and dated January 14, 2013 No. 03-03-06/1/7.

Sale of company debts and company liquidity

Elements of the second section of the balance sheet are arranged in order of increasing degree of their liquidity. This concept refers to its ability to be transformed into money in a relatively short time. The most illiquid part of the balance sheet is inventory, since selling it is the most difficult task. Selling remote control is also a difficult, but achievable task. The likelihood of a successful debt sale depends on its conditions: term, reliability of the debtor, and so on. There are often cases of sale of remote control at a reduced price, due to lack of demand or short deadlines for sale.

What are doubtful debts

The definition of doubtful debt is given in Art. 266 of the Tax Code of the Russian Federation, where the specified term means any debt to the taxpayer that arose as a result of late payments within the time limits specified by contractual obligations and not secured by a pledge, surety, bank guarantee and other means of ensuring the fulfillment of obligations .

Any receivables reflected in the debit of the accounts fall under the doubtful category:

• 60 “Settlements with suppliers and contractors”;
• 62 “Settlements with buyers and customers”;
• 76 “Settlements with various debtors and creditors.”

In addition, a loan not repaid on time, reflected in subaccount 58-3 “Loans provided,” can be classified as doubtful debt.

How to protect your company from losses

In case of doubtful debt, the debtor has the right to collect debts from the creditor in court. In turn, the opponent can file a counterclaim to contest the debt.

To protect yourself from future losses, when making a transaction you must:

1. Competently draw up a supply agreement, since, according to Article 454 of the Civil Code of the Russian Federation, “on the basis of a supply agreement, the seller undertakes to transfer the ownership of the goods to the buyer.”

The contract must indicate:

• a) credit period;
• b) the procedure for accepting the buyer’s order for the goods;
• c) procedure for acceptance of goods by the buyer:
• d) sequence of shipment and handover;
• e) deadlines for inspection and reception.

2. Correctly draw up the primary shipping documentation, since it is proof of the supplier’s fulfillment of obligations to ship the goods.

• a) In case of transportation of goods by vehicle, ensure the availability of:

I) waybill (Bill of Lading).

The invoice is drawn up in 4 copies and requires filling in the following details:

1. Recipient's name
2. Shipping Name
3. Cargo quantity
4. Cargo weight
5. Method for determining weight category
6. Type of packaging material
7. Loading/unloading method
8. Time (start/end) of loading

II) waybill or standard intersectoral form 4-P. The main form is filled out by the carrier, and the tear-off coupon is filled out by the customer for transportation.

• b) In case of shipment of goods from a warehouse, the following documents are required:

I) delivery note (TORG 12)

The invoice is filled out in 2 copies. The first copy is for the organization shipping the goods, and the second copy is for the recipient;

II) power of attorney to an authorized person to receive the cargo.

Methods of provision

In order to protect themselves from unplanned losses associated with non-payment for the delivery of goods, organizations use such security methods as:

• a bank guarantee is a one-sided transaction that does not require written acceptance of the guarantee by the beneficiary. This is the most reliable security, but quite expensive, as it is a type of loan;
• pledge – a pledge agreement is drawn up for movable or immovable property. The contract for movable property does not need to be notarized; it is enough to draw it up in free form. A real estate pledge agreement must be registered with a notary;
• guarantee – drawn up in writing between the beneficiary and the guarantor bilaterally;
• issuing bills is the most impractical form, since first of all the bill must be protested by a notary, then the debt must be collected through the court in a public manner.

Types of doubtful debts

All doubtful debts can be divided into four large groups depending on the possibility of their collection (see Table 1).

Table 1. Types of doubtful debt.

All of the above in simple language: a doubtful debt is a debt that is unlikely to be collected using legal means .

Reflection of transactions

All manipulations with the fund for unsecured arrears are confirmed by an accounting certificate. In this case, the following entries are generated in accounting:

Receivables from counterparties are reflected in the balance sheet on line 1230 of the asset at the amount of the balance of the liability accounts minus the reserve. Contributions to the coverage fund are accounted for on line 2350 of the financial results statement.

There are some nuances:

1. According to the clarifications of the Ministry of Finance of the Russian Federation, decisions of the Supreme Arbitration Court, and the Constitutional Court, the amount of VAT not received from buyers, suppliers and customers is taken into account in the reserve fund.
2. It is unacceptable to take into account the amount of advance payments for upcoming deliveries as part of doubtful accounts receivable, even if the likelihood of the debtor fulfilling his obligations is low.
3. The reserve covers exclusively bad debts, including by decision of government agencies, upon liquidation of the debtor, or the end of the claim period. When applying the latter basis, it is important to exclude all attempts by the counterparty to admit the existence of arrears.
4. The exclusion of a defaulter from the state register under a simplified scheme is equivalent to liquidation and is a factor in recognizing the specified amount of debt as bad and subject to write-off. Therefore, the creditor has the right to take into account the counterparty’s receivables as expenses that reduce the tax base.

Conditions for forming a reserve for such debts

At the legislative level, the mechanism for creating a reserve for doubtful debts is not specified. Enterprises must themselves develop a regulatory framework for accounting, on the basis of which the amount of the reserve will be formed and reflected in accounting. The document must be put into effect by order of the manager. It says:

• methodology for determining the level of solvency of the debtor;
• lists the insolvency criteria on the basis of which doubtful debts are reflected in accounting;
• the rules for the formation and accounting of reserves are outlined.

Important: with a simplified taxation system (STS), a reserve does not need to be created.

How often to contribute to the reserve

The frequency of contributions to the reserve depends on the timing of the preparation of financial statements.

Deductions to the reserve for doubtful debts are a change in the estimated value (clause 4 of PBU 21/2008). Changes in estimated values ​​are reflected in accounting as expenses for the reporting period in which these changes occurred. Thus, contributions to the reserve must be reflected in accounting at the frequency with which the organization prepares its financial statements (Article 15 of the Law of December 6, 2011 No. 402-FZ).

Methodology for determining the level of solvency

A delay in payment for services or goods should alert the lender's management. Its specialists should immediately begin assessing the financial condition of the debtor. This can be done in different ways, within the framework of the law:

• ask for an extract from the Unified State Register of Legal Entities or Unified State Register of Individual Entrepreneurs in case of liquidation of a legal entity;
• request financial statements for the last quarter from the counterparty or Rosstat. This will allow you to analyze the financial condition of the debtor:

1. profitability;
2. liquidity;
3. amount of debt;
4. amount of assets, etc.

• order an analysis on the State Services portal, but here, firstly, you will have to pay, and secondly, fill out the application correctly - the report data is a commercial secret.

Attention: application submission to Rosstat and the State Services portal is carried out in accordance with Rosstat order No. 183 dated May 20, 2013.

Criteria

To classify a debt as doubtful when determining the amount of taxation, it must:

• arise as a result of the sale of products, works or services. Debt on other grounds, such as prepayment for goods or services, fines and penalties for violation of the terms of the contract, is not considered doubtful. Debt under a loan agreement cannot be considered the same;
• be overdue - the money did not arrive in the creditor’s settlement account on time, within the terms specified in the purchase and sale or delivery agreement.

When to create a reserve

Create a reserve in the reporting period in which, during the inventory of receivables, you identified doubtful debts. And it does not matter whether a similar reserve was created in tax accounting or not (letter of the Ministry of Finance of Russia dated May 16, 2011 No. 03-03-06/1/295).

In general, there is a significant difference between the reserve for doubtful debts in accounting and tax accounting. In particular, reserves are required in accounting. But for tax accounting there is no such requirement.

By the way, pay attention. You need to create a reserve only when you do not have confidence or any additional guarantees that the overdue receivable will be repaid. And vice versa. If you are sure of the buyer’s insolvency, you know: you won’t receive money from him on time, then create a reserve too (letter of the Ministry of Finance of Russia dated January 27, 2012 No. 07-02-18/01).

Situation: how to determine the solvency of the debtor, the likelihood of repayment of receivables, when deciding to create a reserve for doubtful debts in accounting?

To do this, collect and analyze available information about the activities and property of the debtor.

So, it is necessary to know about the liquidation of the debtor. After all, then the risks that the agreements will not be fulfilled may increase significantly. You can obtain this information by requesting an extract from the Unified State Register of Legal Entities or the Unified State Register of Individual Entrepreneurs.

Next, you can analyze the financial position of the debtor - its operating profitability, dependence on borrowed funds, liquidity of assets, the volume and composition of its accounts payable. All these indicators can be determined based on open data in financial statements. That is, from the Balance Sheet and the Income Statement. You can request reports from the counterparty itself or from the territorial branch of Rosstat. And even order it on the government services portal. The procedure for obtaining reports from statistics is specified in detail in the Regulations, which were approved by Rosstat Order No. 183 dated May 20, 2013.

Based on the information received, make a decision on creating a reserve and its amount.

Before creating reserves, one formality must be observed. Include in your accounting policies for accounting purposes specific signs of debtor insolvency, in the presence of which you will create reserves for doubtful debts. This follows from paragraphs 6, 7 of PBU 1/2008.

Formation rules

For each debt, reserves can be calculated using several methods. Here is one example:

• if the debt is overdue for more than 3 months, the entire amount of the debt, 100%, is included in the reserve;
• if the delay is more than 1.5 months, but less than 3 - 45%;
• up to 45 days - no accounting entries are made for the debt.

At the next stage, the reserve amounts for each debtor are summed up. Here you need to remember that there is a limit established by legislative acts - the amount of the reserve should not exceed 10% of gross revenue. If it is more, you will have to reduce it to the standard.

The maximum contribution amount can be calculated using the formula:

SPO = Vd x 10 / 100 , where:

• SPO - amount of maximum deductions, rub.;
• Vd - the amount of revenue from the sale of goods, works, services for the reporting period (excluding VAT), rub.
• 10 - percentage of maximum deductions (4 Article 266 of the Tax Code of the Russian Federation).

Based on the results of the calculations, an act is drawn up in the form INV-17 or developed directly in the organization (approved by order along with guidelines for the formation of the reserve).

The impact of accounts receivable on business

The issue of the impact of the presence of accounts receivable on business is controversial. On the one hand, it allows you to significantly expand your business opportunities. The entities with which the company interacts do not always have sufficient funds to fully pay for goods and services. Then remote sensing is one of the few means that makes interaction possible.

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However, it must be remembered that accounts receivable is the cost of goods that were sold but not paid for, or materials that were purchased but not received for use. Accordingly, it always causes the diversion of funds from circulation, their temporary death. Consequently, if the volume of accounts receivable is too large, this does not contribute to the development of the business, but rather, on the contrary, hinders its expansion. In addition, there is always a risk that the debt will not be repaid, which inevitably leads to financial losses and can even lead to bankruptcy of the company. For this reason, the permissible amount of debt must be approached extremely carefully, carefully weighing all the risks and possible benefits.

Methods for creating a reserve

Creating a reserve for doubtful debts of an organization (enterprise) can be carried out in the following ways:

• interval;
• expert;
• statistical.

Interval method. The interval method of reserve formation is one of the most accurate, but also more labor-intensive methods for determining the reserve amount. The bottom line: each debt for a month or quarter (reporting period) is taken and, depending on the time of delay in days, it is multiplied by the percentage (50 or 100%) established by law, as mentioned above.

Expert method. You can do it differently: estimate the amount of debt that will not be received by the company, based on data on the financial solvency of debtors, without taking into account the period of delay.

Statistical method. Statistics know everything. Therefore, we take the same reporting period for several previous years and find the average amount of doubtful accounts receivable - the simplest method, which is quite close to reality.

Purpose of creation

The collateral base for doubtful receivables allows the head of the creditor company to obtain reliable information about the condition of assets, assess potential risks and expenses. In the balance sheet, the total amount of debtors' liabilities will be reduced by the reserve fund.

Failure to fulfill debt obligations on time is classified as doubtful debts

The methodology for assessing financial risks for accounts receivable arrears is based on economic analysis. The specific procedure for calculating the risk coefficients of insolvency of counterparties is prescribed in the constituent policy of the organization or in internal local regulations. It is important to understand that the process of organizing, expanding, and reducing the reserve fund must be strictly reflected in the costs and income of a legal entity.

In practice, the lack of resources to cover unsecured arrears in an enterprise with low turnover does not cause significant harm to financial stability. The regulatory authorities will issue a reprimand only if the information in the accounting or tax reporting is significantly distorted. Large companies must comply with legal requirements and form a reserve fund.

To determine the size of the base for covering receivables, the accounting service of the enterprise must necessarily make an inventory of mutual settlements. The procedure will allow us to identify the real state of settlements, as well as assess the possible risks of non-payment.

Differences in the formation of reserves in accounting and tax accounting

The rules for creating a reserve for doubtful debts in tax accounting differ significantly from the procedure for creating the same funds in accounting.

1. The need for creation.

1. In accounting, a reserve is required if there are doubts about the “receivable” - these are the requirements of clause 70 of the Accounting Regulations.
2. In tax accounting, everything is left to the chief accountant - it is he who decides whether or not to include the created reserve in the tax base to reduce profits, and with it the amount of taxes (clause 3 of Article 266 of the Tax Code of the Russian Federation).

2. Different concepts of doubtful debt.

1. For an enterprise, these are any types of overdue receivables, as well as, importantly, debts that can be overdue with a high degree of probability.
2. For the tax service, the amount of the reserve is determined only for overdue debts for payment for goods, works and services (clause 1 of Article 266 of the Tax Code of the Russian Federation).

3. Timing of indebtedness.

1. Accounting accrues reserves not only for overdue debts, but also for those that may be overdue.
2. Tax accounting takes into account only amounts of debts for which the payment period has expired.

4. Place of reflection.

1. In accounting - other expenses.
2. In tax accounting - non-operating expenses.

5. Reserve amount.

1. In accounting in an organization and an enterprise, the amount of the reserve is not limited by anything.
2. Tax authorities allow increasing the cost part by only 10% of the revenue in the reporting period.

Differences between reserves in NU and BU, accounting for differences

The procedures for creating reserves in BU and NU differ quite significantly. The main differences between the reserve formed in the accounting system include:

• the obligation to form it for a debt recognized as doubtful for all legal entities without exception;
• applicability to debts of any kind and to those that are not yet overdue, but may become so;
• the admissibility of independently developing criteria for assessing the doubtfulness of debt and rules for determining the size of the reserve.

Maximum convergence of the rules of accounting and accounting rules for the reserve by establishing them in the accounting accounting as the same as in the accounting rules may not give results in terms of the formation of identical accounting data already due to one circumstance of discrepancy between the types of debt in respect of which in accounting there is an obligation to create reserves, and in Oh no.

If a reserve is not created in the NU, then discrepancies between the NU and the BU will arise due to the very fact of this non-creation.

Thus, there are almost always discrepancies between the data of NU and BU when creating a reserve. Therefore, there is a need to take into account the resulting differences. They are temporary in nature and are subject to all the rules established for them by PBU 18/02 (Order of the Ministry of Finance of Russia dated November 19, 2002 No. 114n).

PBU 18/02 has been amended since 2021. ConsultantPlus experts spoke in detail about the innovations in PBU 18/02. Get free demo access to K+ and go to the Review Material to find out all the details of the innovations.

Reflection of reserve formation in accounting

The amounts of the provision for doubtful debts reflected in the accounting records are estimates. Their inventory makes it possible to more or less reliably predict income in the reporting and coming periods. Debt amounts are reflected in “other expenses” in the account. 63 “Provisions for doubtful debts”. To do this, the following wiring is performed:

Debit 91-2 Credit 63 - an existing reserve has been created or increased.

When payment is received from the counterparty, the reserve by the amount received must be reduced. Then the restoration is carried out using the following accounts: Debit 51 (50) Credit 62 (71, 73, 76...) - funds were received from the debtor and Debit 63 Credit 91-1 - the reserve was reduced by the amount of the repaid debt.

Calculation methods

For accounting, three standard schemes are used to determine the amount of the reserve:

• Interval.
• Expert.
• Statistical.

The first method involves quarterly or monthly calculation of the indicator based on the period of violation of contractual obligations based on the share ratio. For a clear understanding, let’s give an example: the buyer violated the terms of the contract and did not transfer payment for services provided in the amount of 1 million rubles. in 60 days. Then, by analogy with tax accounting, the creditor’s accountant will create an entry to increase the debt reserve by 50% of the debt amount, i.e. by 500 thousand rubles.

The expert method is based on a qualified assessment of debt obligations. At the same time, only those amounts of receivables that, in the opinion of a financial service specialist, will definitely not be repaid will be included in the increase in the fund.

Let’s say the customer’s debt under the contract amounted to 300 thousand rubles, of which 200 thousand rubles. are overdue by 70 days, and 100 thousand rubles. by 50. After a detailed analysis, the manager decides to increase the reserve by exactly 200 thousand rubles. When the debt is written off, the fund will cover only part of it, and the rest will be charged to other expenses.

The statistical method is based on monitoring the state of obligations among the total mass of debts over several reporting periods (month, year). In this case, accounting data can be taken at the beginning or end of the declared time period.

For example, based on the results of the first quarter, a reserve of 150 thousand rubles was created. In the second quarter, the share of doubtful debts from the total amount of receivables amounted to 120 thousand rubles. The accountant recovers 30 thousand rubles. from reserve. If, at the end of nine months, there is an increase in outstanding debts, the covering fund increases again.

Transfer, use and restoration of reserve

The created reserve enterprise (organization) has the right:

• postpone;
• use;
• restore.

Transfer

The created reserve is not always used in the reporting period for which taxes are paid to the budget (quarter or year). In this case, the balance can be carried forward to the next reporting period. To do this you need:

• at the end of the new reporting period, conduct an inventory of doubtful debts;
• calculate the volume of the reserve for the reporting quarter;
• check the accrued amount for compliance with the requirement for a limit of 10% of revenue;
• compare the resulting reserve amount with the balance on the first day of the reporting period.

There are two possible situations here:

• the amount of the new reserve is less than the transferred balance. In this case, the difference is included in non-operating income of the tax period;
• the balance is less than the accrued reserve, then the reserve is replenished from non-operating expenses.

If in the first quarter of next year a decision is made to abandon the accounting for the provision for doubtful debts, when calculating taxes you need to:

1. make changes to the previously approved tax policy;
2. show the balance of the reserve as of December 31 of the reporting year in non-operating income, increasing the capital of the organization;
3. the operation should be reflected in the declaration on line 100 of Appendix No. 1 to sheet 02 and on line 020 of sheet 02 as part of general non-operating income.

Usage

The purpose of creating a reserve for doubtful debts is to reduce the amount of budget contributions in the form of income tax. Write-off of bad receivables is carried out in the following order.

1. Documents are being collected. Some of them must show how the debt arose: supply or purchase and sale agreements, shipping documents or certificates of work performed, letters of claim to the debtor. The second part is required to confirm the fact of the impossibility of collecting: extracts from the State Register of Legal Entities or the tax inspectorate on the liquidation of the debtor, court decisions, etc.
2. A certificate signed by an accountant is being prepared justifying the need to write off the debt.
3. An order from the manager is issued to write off the debt at the expense of the reserve.

Recovery

After the debt is written off, an inventory of doubtful debts is again carried out at the end of the reporting period. If it is greater than the balance, the reserve is restored at the expense of non-operating expenses.

About tax accounting of doubtful and bad debts

In the business environment, there are often cases when the counterparty delays or does not make payment under the contract at all. On the one hand, tax legislation, as a general rule, requires that revenue from transactions that has not yet been received be recognized in income. On the other hand, it allows you to reduce the tax base for deductions to the reserve for doubtful debts, and after the occurrence of certain events - to write off the unpaid debt as expenses.

An interview with an expert, Sergei Razgulin, 3rd Class Actual State Advisor of the Russian Federation, is devoted to issues related to accounting for overdue receivables in expenses.

The buyer did not pay for the products sold by the seller. How can the buyer's debt be taken into account by the seller as expenses when assessing income tax?

Clause 2 of Article 265 of the Tax Code of the Russian Federation equates losses to non-operating expenses. Losses include the amount of bad debts.

The taxpayer has the right to decide to create a reserve for doubtful debts. Doubtful debts for which a reserve was formed, which have become bad debts, are taken into account at the expense of the reserve.

When the amount of the reserve turned out to be insufficient to cover bad debts, the resulting difference is recognized as a loss, which is included in non-operating expenses (subclause 2 of clause 2 of Article 265 of the Tax Code of the Russian Federation).

Thus, doubtful and bad debts can be taken into account in expenses.

What is considered doubtful debt?

According to paragraph 1 of Article 266 of the Tax Code of the Russian Federation, a doubtful debt is a debt to a taxpayer that:

—

arose in connection with the sale of goods, performance of work, provision of services;

—

not repaid within the terms established by the agreement;

—

is not secured by collateral, surety, or bank guarantee.

These signs must be present in combination. At the same time, say, subsequent depreciation of the collateral does not allow the debt to be classified as doubtful. But, when security functions are not respected due to loss of collateral, death of the guarantor, etc., the debt may be recognized as a doubtful debt.

What amounts are not considered doubtful debts?

The following are not considered doubtful debts:

—

expenses in the form of advance payment, including advances (letter of the Ministry of Finance of Russia dated September 4, 2015 No. 03-03-06/2/51088);

—

debt under an assignment agreement, since it is not considered as debt arising in connection with the sale of goods, performance of work, provision of services (Decision of the Supreme Court of the Russian Federation dated April 13, 2015 No. 301-KG15-2232);

—

debt on fines (Decision of the Supreme Court of the Russian Federation dated April 13, 2015 No. 301-KG15-2232);

—

amounts of funds placed in accounts and deposits in banks (letter of the Ministry of Finance of Russia dated March 22, 2016 No. 03-03-05/15801);

—

debt under the contract, if it is covered by insurance compensation under the business risk insurance contract (letter of the Ministry of Finance of Russia dated May 24, 2017 No. 03-03-06/1/31890).

How are amounts of doubtful debts included in expenses?

A taxpayer using the accrual method has the right to create a reserve for doubtful debts. The procedure for creating a reserve in tax accounting should be reflected in the accounting policy for tax purposes.

To determine the amount of the reserve for the last day of the reporting (tax) period, an inventory of receivables is carried out, which is grouped by the time of its formation. The reserve is calculated as follows:

—

For doubtful debts with a period of occurrence exceeding 90 calendar days, the full amount of the debt is included in the amount of the created reserve;

—

For doubtful debts with a period of occurrence from 45 to 90 calendar days (inclusive) - 50% of the debt amount is included in the reserve amount.

For doubtful debts with a period of up to 45 days, a reserve is not formed.

A reserve can also be created in respect of debt incurred in previous periods, provided that it was not previously created in respect of such debt (letter of the Federal Tax Service of Russia dated January 20, 2005 No. 02-3-08/274).

Is it possible to introduce into the accounting policy criteria for the formation of a reserve depending on the category of debtors?

The formation of a reserve is the right of the taxpayer. Therefore, he can establish additional conditions in addition to those provided for in Article 266 of the Tax Code of the Russian Federation: by the amount of debt, by category of debtors, etc. Then the reserve will be formed, for example, only for the debts of legal entities exceeding a certain amount. This measure will increase the economic effect of creating a reserve by reducing administrative costs for analyzing the terms of transactions for which there is a small amount of debt.

If an organization has both receivables and payables in relation to the same debtor, in what amount is the reserve formed?

When auditing tax periods before 2021, it is possible that the tax authority will require a reduction in doubtful debt by the amount of accounts payable. This position is based on the possibility of repaying the debt or part of it by offsetting counter homogeneous claims in accordance with Article 410 of the Civil Code of the Russian Federation (letter of the Federal Tax Service of Russia dated January 16, 2012 No. ED-4-3 / [email protected] ).

When making tax claims in such a situation, the taxpayer can use as an argument in his defense Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated March 19, 2013 No. 13598/12, according to which the inclusion of doubtful debt in the reserve does not depend on the presence of counter accounts payable in the organization.

However, if the parties to the agreement are interdependent persons, the formation of a reserve without reducing it by the amount of accounts payable can be regarded as receiving an unjustified tax benefit: the artificial creation of a reserve. That is, the classification of a debt as doubtful can be challenged.

Since 2021, paragraph 1 of Article 266 of the Tax Code of the Russian Federation has directly stated that only that part of the debt to the taxpayer that exceeds the taxpayer’s accounts payable to the same counterparty is recognized as doubtful debt.

What does the accounts payable indicator include in this case?

This indicator takes into account the amount of debt of the taxpayer to the counterparty for any transactions, regardless of the date of its occurrence (letter of the Federal Tax Service of Russia dated 06/08/2017 No. SD-3-3 / [email protected] ). Accounts payable also includes the amount of advance received from the counterparty.

In order to determine a doubtful debt in the presence of a counter obligation (accounts payable), according to the Ministry of Finance, it is necessary to proceed from the fact that, first of all, accounts payable reduces accounts receivable with the longest period of occurrence (letter dated June 20, 2017 No. 03-03-RZ/38289 ).

Is the size of the reserve limited?

The amount of the reserve cannot exceed 10% of revenue. The specific amount of the reserve is determined by the taxpayer in the accounting policy for tax purposes.

From 2021, the procedure for calculating this limitation has been changed, and in favor of the taxpayer.

Taking into account the amendments, based on the results of the 2021 tax period, the reserve cannot exceed 10% of 2021 revenue.

Based on the results of the corresponding reporting period of 2021, the amount of the reserve is calculated from the greater of: either 10% of revenue for 2016 or 10% of revenue for the corresponding reporting period of 2017 (first quarter, half year, nine months). Moreover, the largest of the values ​​is applied automatically, that is, it does not require a choice in the accounting policy.

What is included in the amount of revenue from which the reserve is calculated?

Revenue consists of all receipts in cash and in kind associated with payments for sales (Article 249 of the Tax Code of the Russian Federation), excluding VAT.

In this case, the amount of doubtful debt is determined taking into account the amount of VAT (letter of the Ministry of Finance of Russia dated July 24, 2013 No. 03-03-06/1/29315). The Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated November 23, 2005 No. 6602/05 also states that the amount of VAT charged to the buyer is reflected in accounts receivable based on inventory results.

On what date are contributions to the reserve recognized?

Expenses for the formation of a reserve for doubtful debts are recognized on the date of its accrual: on the last day of the reporting (tax) period (clause 3 of Article 266, subclause 2 of clause 7 of Article 272 of the Tax Code of the Russian Federation).

How is the created reserve used?

The allowance for doubtful debts is used to cover losses from bad debts.

From the letter of the Ministry of Finance of Russia dated July 17, 2012 No. 03-03-06/2/78, we can conclude that debts that are recognized as bad, even if they did not participate in the formation of the reserve, must be written off at the expense of the reserve.

But the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 17, 2014 No. 4580/14 reflects a different position: if the debt did not participate in the formation of the reserve for doubtful debts, then if it is recognized as bad, it is directly taken into account as part of non-operating expenses. Following this position allows the taxpayer to take into account the amount of bad debts in expenses without reducing the created reserve. Moreover, the reasons why a reserve was not formed in relation to the debt are not important.

In addition, the taxpayer has the right to choose the method of accounting for bad debt in expenses, for which a reserve was not formed, since accounting for bad debt at the expense of a reserve, and not as a loss, does not lead to an understatement of the tax base for income tax.

What has changed since 2021 when using the provision for doubtful debts?

From 2021, firstly, the rule on the use of reserves throughout the entire tax period is more clearly visible.

Secondly, the procedure for transferring reserves to the next reporting (tax) period has been clarified.

On the last day of the reporting (tax) period, an inventory of receivables is carried out. A new reserve amount is calculated and adjusted based on the limit of 10% of revenue.

The unused balance of the reserve is determined as the difference between the amount of the reserve as of the previous reporting date and the amount of bad debts that arose during the past period.

The remainder of the reserve is subtracted from the new reserve amount. If the difference is positive, it is included in non-operating expenses of the current period. If the difference is negative, that is, the balance of the reserve already contains excess amounts, then they are included in non-operating income of the current period.

When the taxpayer decides not to create a reserve for the next tax period, the entire balance of the reserve is included in non-operating income (clause 7 of Article 250 of the Tax Code of the Russian Federation).

When does a debt become bad?

When the probability of receiving it is virtually impossible. A bad debt is also called a debt that cannot be collected (clause 2 of Article 266 of the Tax Code of the Russian Federation). This is a debt for which the statute of limitations has expired. Or a debt for which, in accordance with civil law, the obligation has been terminated:

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impossibility of its execution (Article 416 of the Civil Code of the Russian Federation);

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on the basis of an act of a state body (Article 417 of the Civil Code of the Russian Federation);

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due to the liquidation of the organization (Article 419 of the Civil Code of the Russian Federation).

The receivables of a foreign organization may also be recognized as bad, for example, due to its liquidation, confirmed by an act of the relevant government body of a foreign state (letter of the Federal Tax Service of Russia dated April 21, 2017 No. ED-4-15/7631).

The Tax Code also stipulates that a debt is recognized as uncollectible, in respect of which, in accordance with Federal Law dated October 2, 2007 No. 229-FZ “On Enforcement Proceedings,” a decree of the bailiff was issued to terminate the enforcement proceedings in the event of the return of the writ of execution to the claimant on the following grounds :

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it is impossible to establish the location of the debtor, his property or to obtain information about the availability of funds and other valuables belonging to him in accounts, deposits or deposits in banks or other credit organizations;

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the debtor does not have any property that can be foreclosed on, and all measures taken by the bailiff that are permissible by law to find his property were unsuccessful.

Please note that debt that is not reflected in court decisions and, accordingly, in the bailiff’s decision cannot be written off on the specified basis.

Any debt can be considered bad, including those that are not included in doubtful debts.

Are the debts of an organization excluded from the Unified State Register of Legal Entities due to its recognition as inactive?

A legal entity is recognized as inactive if, during the twelve months preceding its exclusion from the Unified State Register of Legal Entities, it did not submit reporting documents required by the legislation on taxes and fees and did not carry out transactions on at least one bank account. Such a person is considered to have effectively ceased its activities and is excluded from the Unified State Register of Legal Entities in the manner prescribed by the law on state registration of legal entities (Article 21.1 of the Federal Law of August 8, 2001 No. 129-FZ).

From September 1, 2014, according to Article 64.2 of the Civil Code of the Russian Federation, the exclusion of an inactive legal entity from the Unified State Register of Legal Entities entails legal consequences provided for by the Civil Code and other laws in relation to liquidated legal entities.

Therefore, if there is an extract from the Unified State Register of Legal Entities containing information about the exclusion of an inactive legal entity from the Unified State Register of Legal Entities, the debt of such a legal entity is recognized as a bad debt and written off as expenses.

Does the inclusion of debts in expenses depend on whether or not the taxpayer took action to collect them?

The taxpayer has the right to recognize a debt as doubtful or bad, even if no measures were taken to collect this debt. In particular, it does not matter whether claims are sent to the counterparty, whether statements of claim are filed in court, etc.

At the same time, one must not forget about the risk of recognizing a tax benefit as unjustified, especially when it comes to accounting for debts arising between interdependent persons. The tax authority may consider that the only business purpose of the taxpayer’s “inaction” was the goal of writing off the debt from the balance sheet and recording it as hopeless, and the inaction itself was in the nature of debt forgiveness (clauses 16, 49 of Article 270 of the Tax Code of the Russian Federation).

Is a debt considered bad upon termination of state registration of an individual as an individual entrepreneur?

No. Termination by a citizen of activities as an individual entrepreneur does not entail the termination of the performance of his duties to creditors (letter of the Ministry of Finance of Russia dated September 16, 2015 No. 03-03-06/53157).

Can the debt of a deceased individual be considered bad?

If the obligation is terminated by the death of the individual debtor, then the debt is considered as hopeless (letter of the Ministry of Finance of Russia dated April 19, 2012 No. 03-03-06/2/39).

In practice, the difficulty arises when such debt is recognized as bad due to the possible presence of heirs and (or) inherited property sufficient to repay the debt.

Creditors have the right to present their claims against the heirs who accepted the inheritance within the limitation periods established for the relevant claims. Before accepting the inheritance, creditors' claims may be brought against the executor of the will or against the estate. In the latter case, the court suspends the consideration of the case until the heirs accept the inheritance or transfer the escheated property in accordance with Article 1151 of the Civil Code of the Russian Federation to the Russian Federation, a subject of the Russian Federation or a municipal entity (clause 3 of Article 1175 of the Civil Code of the Russian Federation). As a general rule, an inheritance can be accepted within six months from the date of opening of the inheritance (Article 1154 of the Civil Code of the Russian Federation).

How is the debt of an individual declared bankrupt taken into account?

From October 1, 2015, an individual who is not an individual entrepreneur may be declared bankrupt.

Paragraph 2 of Article 266 of the Tax Code of the Russian Federation does not directly provide for such a basis for classifying a debt as hopeless as declaring a citizen bankrupt.

From the date the arbitration court issues a ruling recognizing a citizen’s bankruptcy petition as justified and introducing the restructuring of his debts, the execution of enforcement documents on property collections from the citizen is suspended (with some exceptions).

If the arbitration court makes a decision to declare a citizen bankrupt, the arbitration court makes a decision to introduce the sale of the citizen’s property.

According to paragraph 3 of Article 213.28 of the Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”, after completing settlements with creditors, a citizen declared bankrupt is exempt from further execution of creditors’ claims, including claims of creditors not declared when restructuring was introduced debts of a citizen or sale of a citizen’s property.

The arbitration court issues a ruling on the completion of the sale of the citizen’s property based on the results of consideration of the financial manager’s report on the results of the sale of the citizen’s property.

Claims of creditors that are not satisfied due to the insufficiency of the citizen’s property are considered repaid on the basis of paragraph 6 of Article 213.27 of the Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy).” The Ministry of Finance was forced to agree with the recognition of such debt as bad (letters dated 04/15/2016 No. 03-03-06/2/21737, dated 06/15/2017 No. 03-03-06/2/37195).

There is another confirmation of the possibility of recognizing a citizen’s debt to an organization that has not been repaid following the completion of settlements in accordance with Federal Law No. 127-FZ of October 26, 2002 “On Insolvency (Bankruptcy)” as hopeless. These are the provisions of Article 59 of the Tax Code of the Russian Federation on recognizing the tax debt of a citizen declared bankrupt as hopeless for collection.

What to focus on when there are several grounds for recognizing a debt as bad?

To recognize a debt as bad, it is sufficient to have one of the grounds specified in paragraph 2 of Article 266 of the Tax Code of the Russian Federation. Thus, if there is a decree from the bailiff on the completion of enforcement proceedings, there is no need to wait for the liquidation of the debtor.

But circumstances indicating that a debt is hopeless require a comprehensive assessment. For example, the termination of the main obligation due to the exclusion of the debtor for this obligation from the Unified State Register of Legal Entities does not terminate the guarantee if the creditor has made corresponding demands on the guarantor (Article 367 of the Civil Code of the Russian Federation). That is, in the situation under consideration, the debt is not yet hopeless.

If there are several grounds for recognizing a debt as bad, it is recognized as such in the period when the first of these grounds arises (letter of the Ministry of Finance of Russia dated June 22, 2011 No. 03-03-06/1/373). It is recommended to adhere to a conservative approach in this matter, taking into account the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 15, 2010 No. 1574/10 that the provisions of Article 272 of the Tax Code of the Russian Federation do not provide the right to arbitrarily choose a tax period in which non-operating expenses include uncollectible debt .

However, there are court decisions in which it is recognized that it is permissible to take into account expenses in the form of amounts of written off bad debts in a later period. For example, Resolution of the Arbitration Court of the East Siberian District dated September 16, 2016 No. F02-4807/2016, Resolution of the Federal Antimonopoly Service of the North-Western District dated June 26, 2013 No. A44-5432/2011.

The basis for the courts' conclusions were the provisions of Article 54 of the Tax Code of the Russian Federation on the choice of the period for correcting errors that led to excessive payment of tax.

How to document the existence of grounds for debt write-off?

In order for an organization to comply with the requirements of Article 252 of the Tax Code of the Russian Federation, documents are required to substantiate the occurrence of debt (agreement and primary documents).

To confirm that the debt has not been repaid at the time of write-off, acts of inventory of receivables are needed at the end of the reporting (tax) period. As well as documents confirming the existence of appropriate grounds for recognizing the debt as bad. For example, an extract from the Unified State Register of Legal Entities on the liquidation of the debtor (letter of the Ministry of Finance of Russia dated March 14, 2014 No. 03-03-06/1/11063).

The write-off of receivables as a bad debt is formalized by order of the organization.

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Provision for debts in tax accounting

In tax accounting, a reserve for doubtful debts is created and used according to the provisions of Art. 266 Tax Code of the Russian Federation. He can:

• created by a written order of the manager;
• formed by legal entities that keep accounting on an accrual basis;
• include only late payments for goods, works and services.

In addition, the reserve is accrued in fixed amounts related to the duration of the delay:

• up to 45 days - 0%;
• from 45 to 90 days - 50%;
• over 90 days - 100%.

Analytical accounting is maintained for each debt. The total amount of the reserve should not exceed 10% of revenue for the reporting period excluding VAT.

Instead of a conclusion. Properly organized accounting of doubtful debts helps mitigate financial problems that arise when payments are missed. When the moment comes when the debt becomes a bad debt, the legal entity repays it from the reserve, reducing the tax base (profit).

What are accounts receivable and when do they arise?

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In the course of business, a company often has to interact with customers who purchase its goods and services, and suppliers who provide materials and components for a fee. Receivables (accounts receivable) arise during this interaction in the following cases:

• The company has transferred goods to customers, but has not yet received revenue for these goods. The customer is expected to pay for the item at a later date.
• The company paid for the materials, but has not yet received them. The supplier is expected to deliver the materials at a later date.

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That is, we can say that if a company has a debt, then there are economic entities that owe it something. It is important not to confuse accounts receivable with accounts payable. The presence of the latter means that there are economic entities to whom this company owes money. At the same time, accounts receivable from one company are often accounts payable from another.