Journal entries for provision for expenses.

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This query is : Resolved

karthigeyan (Querist)

25 January 2011 Following is the situation.

There is a bank account with balance Rs.60,000. And this amount is deposited towards expected Medical expenses for the year.

We need to create a reserve for this Medical expenses and reduce the reserve as and when the expense is met. All the expenses will be made through cheque so the bank also have to refelect the current outstanding.

Only expended amount has to reflected in P&L.

What are the ledgers that needs to be created?
What is the accounting entry for creating a provisions?
What is the journal entry for actual expenses?

Can anyone explain with examples?

Thanks in advance.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)

25 January 2011 Provision for expenses is made for these expenses which is related to current period i.e accured but not paid.
In your case there is no accurance of expenses, there is expecation only.
Hence no provison is made for expected expenses in Profit & loss a/c.

karthigeyan

karthigeyan (Querist)

25 January 2011 I beg to differ. Even Provision for Bad debts is not an incurred loss. When it can be provided for why not expenses?

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)

25 January 2011 Provision for bad debt is that amount which is not to be received from debtors.
It is provided agaisnt such debtor to show real debtor of the concern.
In such case, if payment is received against such bad debt , it will be taxable.

ACMA Obulirajan R

ACMA Obulirajan R (Expert)

25 January 2011 I fully aggree with Mr.Bijender. We cannot create provision for the expenses which is going to be incurred. Provision can be created only for the expenses that are already incurred but not paid.

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