Provisions are created at the beginning or ta the end of the year. Please Explain?
For Example when we create Provision for Bad Debts we take certain % of Debtors as Provision....Please Explain the working of provision in detail and there treatment in accounts?
Dear Sejal,
The provisions are to be created at the end of the year. This is so, because, the balance sheet is prepared as on that date.
Thus, you create a provision to book everything to get the balance sheet position correct. Eg: you provide for expenses for the year ending in March, but for which the payments are expected to be made in the next year.
The same concept applies for Provision for Bad Debts, i.t. those debts which are expected to be defaulted upon and the company may suffer a loss on the same.
if you have any queries, please feel free to ask..Thanks
Dear ankit
is there any scientific basis on which we take provisions.
I mean like we say 2% of Provison for bad debts
On what basis we come to this figure of 2%.
Also suppose every month telephone bill comes.
Now in March we know that telephone bill of March will come in beginning of April but we dont know how much?
Now how will we make provision on 31-st march
on what basis and what will be the name of the account
regards
shivani
CAclubindia
