V Ramakrishnan (Manager Accounts & Administration) (23 Points)
06 August 2020Please give example for the following telephone bill provision to be made in March 20. Bill dated 1.4.2020. Telephone rental - Rs 11684.48 Input CGST Rs 1051.61 Input SGST Rs 1051.61 Total bill Rs 13787.70 How to make provision entry as of March?
YASASWI GOMES
(49 Points)
Replied 06 August 2020
Excess provisions are not encouraged and telephone expense are recorded when they incur. However, to clarify your doubt, provisions are created as a result of past events when economic benefit outflow is probable. Here, there is no past obligation and hence, provision cannot be created for next month expenses. Plus no need to create provisions for future operating expenses as they are classified as normal activities. There is no double entry that you can recognise a provision for as the event did not occur.
YASASWI GOMES
(49 Points)
Replied 06 August 2020
Telephone bill a/c -> (this event did not occur to recognise it on income statement as it will reduce profits)
CGST
SGST
To Provisions a/c
hence this double entry is invalid and you can create a reserve fo telephone bill out of retained earnings if you like.
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