generally we create reserves and provisions to provide us funds for future expenses and contingencies.
then why do we prepare a "PROVISION FOR DISCOUNT ON CREDITORS" which is a gain to us.
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we show them just because for clarity in books of accounts.. and the provision for discount of creditors will reduce the value of creditors shown in the balance sheet. if we dont record provision for discount of creditors then there will be no justification in books of accounts to show the value of creditors @ lesser value.... if we dont show that and creditors value is low then it might be understand that the portion has been paid by us.. to avoid this mis interpretation it is recorded :)
i think it is made because of certainity in the nature of discount....as it will be received by us in future from our creditors...like year end discount.....
if it is being created, then it is against accounting principles unless the gains had been clearly established... if gain is not certain, then provision should not be created.
As per accounting principles it is against to accrual concept
Bt what abt conservatism concept..provide for only losses not profit
true ! it is against conservatism
Matching concept....
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