Provision Entry

What entry we should pass for provisions????????

many recuirter ask me this question when i go for interview

pls help anc clear its function and reason

Replies (12)
Quick Summary
Provision entries recognize expected liabilities or expenses. Typically debit expense and credit provision. Example: Expense Dr to Provision. Later reverse or adjust when actual expense occurs. Used for accruals, bad debts, taxes, and ensures proper matching in financial statements.

PROVISION IS A LIABILITY SO FOR EXAMPLE :

SAY U VE TO CREAT A PROVISION FOR BADDEBTS

FIRST U VE TO DEBIT THE EXPENDITURE IE., BADDEBTS

AND THEN U VE TO CREATE A LIABILITY SAYING PROVISION FOR BAD DEBTS..

SO THE EFFECT IS U VE DEBITED THE EXPENDITURE AND THIS PROVISION FOR BAD DEBTS WILL BE SHOWN IN THE LIABILITY SIDE OF THE BALANCE SHEET...

SO WHEN THE REAL BAD DEBTS OCCUR....

U WILL DEBIT PROVISION FOR BAD DEBTS AND CREDIT THE RESPECTIVE SUNDRY DEBTORS... SO THEN IT WIL BE NULLIFIED

I am giving you an example scenario:-

Suppose at the year end 31st March 2009, I assess that I have not received bills from our auditors to the tune of Rs. 1,00,000. We have to create provision for the same. I pass the entry:-

Audit Fess.....Dr.

To Provision for expenses

On 1 April 2009, I reverse this entry,

Provision for expenses.... Dr.

To Audit Fees

Suppose I receive bills from auditors on 1st July 2009 relating to previous year services. I make the follwoing entry:-

Audit fees..... Dr.

To Payable/Vendor

and I finally make payment in August 09,

Payable/Vendor .....Dr.

To Bank

Hope I have been able to clear your doubts. In this way, we ensure the periodicity concept.

 

 

 


The quaries are as follows:

                      1)What will be the entry a while creating provision for B.Debt & what will be the effect in P/L & B/S in the current year & also let me know that what will be the entry in the subsiquent years if it arises Bad Dedt arises or money is been recipt against your provisions in the earlier yaer& there effect in the subsiquect year in P/L & B/S.

                   2)What will be the entry for Outstanding expences & there effect in P/L & B/S & What will be the entry in the subsiquent year if the Outstanding expences is paid or the earlier year entry is reverse back & there effect in P/L & B/S.

                3)What is Quated & Unquated Investment & there treatment in B/S.

                                                                Gaurav Bhattacharya

                                                                9831058746

please tell me how dose Provision for IT is created, suppose if the Net profit after Exp. is Rs.100000/-  and also give me all entry even payment in next year of same IT

Respected members may correct / fine tune the below entries

1.
Payment of Advance Tax

Advance Tax a/c     Dr. 3000
 To Bank            3000

2.
Provision for income tax

Income tax            Dr. 2500
 To Provision for Income tax     2500

3.
Presentation in P/L

Net Profit before Tax     7500
Less: Current Tax        2500
Net Profit after tax     5000

4.
Presentation in B/s

Source of Funds
.
.
.
Advance Tax                                  3000
Less: Provision for income tax  2500
(Offsetting of assets and liabilities of current tax as per AS 22)

Continue the above presentation untill the assesement is over

5.
After the completion of assesement (if assessed tax is 2500)

Provision for income tax  Dr. 2500
Refund Receivable           Dr.  500
 To Advance Tax                                3000

I cleared the case

 

Thanks

 

Girish

I want to book telephone exp provision entry for the month of March 2012? How can i pass this entry? I want record effect of service tax also in it? Should I pass entry as follows:

1) telephone exp Rs.100

to Tele exp payable Rs.100

(on 31.03.2012)

2) tele exp payable Rs.100

to tele exp Rs.100

(on 01.04.2012 for reversal of provision)

3) tele exp Rs.100

Input Service tax 10

to mtnl no.000012 Rs.120

(for booking march bill on 05.04.2012)

4) Mtnl 0000012 Rs.120

to Bank Rs.120

(on 06.04.2012 to make payment)

Does all above entrries are right?

 

For Advance gratuity valuation and Gratuity & deffered tax ,how we have to close the entry for yearend activities...pls suggest me..

 

Ranjan Nayak

thank you so much

Provision is an account which recognizes a liability of an entity. Such liabilities are normally related to unpaid expenses. Hence, the recording of the liability in the balance sheet is matched to an expense account in the entity's P&L A/c.

provisions include accruals, asset impairments, bad debts, depreciation, doubtful debts, guarantees (product warranties), income taxes, inventory obsolescence, pension, restructuring liabilities and sales allowances. Often provision amounts need to be estimated.

Journal entry

Debit : Bad Debts 
Credit : Provision for B/D


Debit : Provision for B/D
Credit : Sundry Creditor
 

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