Provision

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

Dear Shivani, There is no set formula for calculating the.provision amount. It is simply based on.your post experience of the debts gong bad...based on your experience and estimate you can provide for it.... Again as regards telephone bills, you need to create an adhoc provision for the expected bill amount...say the bill varies in the range of Rs 500 to 600.... You could provide for say 550... Incase you have any doubts, please feel free to ask...