Whether journal entry for provision made are correct

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This query is : Resolved

Daya (Querist)

26 May 2022 PROVISION FOR AUDIT FEES ON 31ST MARCH RS. 60K, From XYZ Co.
(1)Whether below entry made are correct
On 31st March entry made
Audit fee A/c Dr.Rs. 60,000
To Provision for Audit fees Rs.54,000
To TDS on Professional Rs. 6,000
On receipt of invoice
Provision for Audit fees Rs. 54,000
To XYZ Co. 54,000
(2) if provision made 60,000 on 31st march but bills received 50,000
what entry should be passed after receiving invoice
(3) if provision made 60,000 on 31st march but bills received 70,000
what entry should be passed after receiving invoice.
Please reply.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

11 July 2024 Let's address each part of your query regarding the accounting treatment for audit fees provision and subsequent invoice receipts:

### Part (1): Entry on 31st March

**Scenario**: Provision for audit fees of Rs. 60,000 was made on 31st March.

**Entry Passed**:
- Audit Fee A/c Dr. Rs. 60,000
- To Provision for Audit Fees A/c Rs. 54,000
- To TDS on Professional A/c Rs. 6,000

**Explanation**:
- Debiting "Audit Fee A/c" recognizes the expense of audit fees.
- Crediting "Provision for Audit Fees A/c" reduces the provision amount.
- Crediting "TDS on Professional A/c" reflects the tax deducted at source on professional fees.

**On Receipt of Invoice**:
- Provision for Audit Fees A/c Dr. Rs. 54,000
- To XYZ Co. (Accounts Payable) A/c Rs. 54,000

This entry correctly reflects the payment of the actual invoice received and adjusts the provision accordingly.

### Part (2): Provision Made Rs. 60,000, Invoice Received Rs. 50,000

**Entry After Receiving Invoice**:
- Provision for Audit Fees A/c Dr. Rs. 50,000
- To XYZ Co. (Accounts Payable) A/c Rs. 50,000

**Explanation**:
- Since the actual invoice received is Rs. 50,000, you adjust the provision downwards by debiting "Provision for Audit Fees A/c" and crediting "XYZ Co. (Accounts Payable) A/c".

### Part (3): Provision Made Rs. 60,000, Invoice Received Rs. 70,000

**Entry After Receiving Invoice**:
- XYZ Co. (Accounts Payable) A/c Dr. Rs. 70,000
- To Provision for Audit Fees A/c Rs. 60,000
- To TDS on Professional A/c Rs. 10,000

**Explanation**:
- Debit "XYZ Co. (Accounts Payable) A/c" for Rs. 70,000 to recognize the liability.
- Credit "Provision for Audit Fees A/c" for Rs. 60,000 to reduce the provision made earlier.
- Credit "TDS on Professional A/c" for Rs. 10,000 to reflect the tax deducted at source on the additional amount.

### Summary:
- The entries made on 31st March and upon receipt of invoices are generally correct and reflect standard accounting treatment for provisions and actual expenses.
- Adjustments are made based on the actual invoices received to ensure accurate reporting of expenses and liabilities.

Always ensure that these entries comply with accounting standards and practices applicable to your jurisdiction. If in doubt or for specific advice tailored to your company's circumstances, it's recommended to consult with a qualified accountant or financial advisor.

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