Is that how it works? Do they get to write off debts to assets of which they are still in possession, as if these are losses? Or are they writing off expenses for things they are not in possession of in any sense (e.g. employee salaries, goods sold)?

I am not an accountant, so I can't claim to fully understand what qualifies as a gain or loss, but my assumption has always been that the accounting rules are supposed to be sane and reflect the difference between these concepts (a real loss vs. going into debt).