provision and accrual

[Former Member]

hi,

in the chart of account, i notice there are provision and accrual account. for example, provision for employee expense (48xxxxxx) and accrual for employee expense (39xxxxxx).

1) may i know what is the difference for these 2 account.

2) under what circumstance i need to use provision or accrual?

3) double entry should be the same. debit p&l and credit either provision or accrual. correct?

thanks

[Former Member]

hi,

Accrual is income earned but not received or expenses incurred but not spent.

a double entry for an accrued interest income:

Intrest accrued a/c Dr

Interest account Cr.

Provision is making provision from the profit for a specified or known expense which is to be met in unknown future.

An entry for salary provision should be:

Salary Expenses Dr.

Provision for Salary ex. Cr.

Regards

[Former Member]

hi,

thanks but i still a bit confused.

1) why i cannot accrual the salary expense but must make provision? i still do not get it.

2) likewise, why bad debt must make provision but not accrual it?

thanks

[Former Member]

Hi

Please read the following:

Accrued revenue is a receivable for other revenue. It is disclosed separately on the balance sheet primarily to allow investors to differentiate receivables from core operations from receivables from peripheral operations.

An accrued expense, on the other hand, is a liability with an uncertain timing or amount but where the uncertainty is not significant enough to qualify it as a provision.

Regards

[Former Member]

hi,

which means accrual and provision both about the same. the difference is the degree of significant?

if the company thinks it has a great impact then will make provision else will accrual it. correct?

thanks again.