Accruals are not the same as provisions both are totally different from each other. Accruals and provision both are vital parts of accounts but work differently Accrual Accrual expense means the transaction that takes place in a particular period must be accounted for in that period only irreRead more
Accruals are not the same as provisions both are totally different from each other. Accruals and provision both are vital parts of accounts but work differently
Accrual
Accrual expense means the transaction that takes place in a particular period must be accounted for in that period only irrespective of the fact when such an amount has been paid.
An accrual of the expenditure which is not paid will be listed in the books of accounts. These accruals can be further divided into two parts
Accrual Expense
Accrual Expense means any transaction that takes place in a particular period but the amount for it will be paid on a later period.
For example- 10,000 for the month of March was paid in April month then this rent will be accounted for in the books in March
These are the following accrued expense
- Accrual Rent– Accrual rent means the amount for using the land of the landlord is paid at a later period than the period when it is put into use.
- Insurance– Accrual insurance means the amount paid as a premium to the insurance company paid on a later period than the period when it is due
- Expense- Acrrual expense means the amount for any expense paid on a later period then the period when it pertains to be paid
- Wages- Accrual wages means the amount which is paid to employees on a later period than the period when the wages get due
Accrual Revenue
Accrual Revenue means any transaction that takes place in a particular period but the amount for it will be received on later period. For example- If interest of 10,000 on bonds for the period of March is received in April months then this amount will be accounted for in March. These are the following accrued revenue
- Accrual Rent– Accrual rent means the amount for using the land of an entity by another party is received on a later period than the period when it was put into use.
- Accrued Interest– Accrued interest means the amount of interest received on a later period than the period when it pertains to receive
PROVISIONS
Provision refers to making a provision/allowance against any probable future expense that the company might incur in the near future. This amount is uncertain and difficult to predict its surety.
However, as per the prudence concept of accounting a company needs to anticipate the losses that will incur in the near future due to which provision is made.
For example- A company has debtors of 10,000 but as per the company’s previous records company anticipates that 1% of debtors will become bad debts. So in this case company will make a provision of 1% that is 100 on it.
There are various types of provisions which are-
- Provision on Depreciation– Provision for Depreciation means a provision for future depletion of assets has been already created
- Provision for Doubtful Debts– Provision for Doubtful Debts means a provision created against debtors that doesn’t seem to be recovered in the near future
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits. A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are: Plant and Machinery InveRead more
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits.
A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are:
Assets can be broadly divided into two categories based on their physical existence:
Tangible Assets can be further divided into two categories based on their life and role in the operating cycle:
Since the company derives benefit from the asset, an asset account is debit in nature. If an asset account has a credit balance, it would fundamentally make it a liability. However, there are certain exceptions to it.
In the case of Bank Overdraft, which means a company withdraws more from the bank than it has deposited in its account, Bank Account can also be shown having a credit balance.
Contra Assets Accounts are the accounts that are contrary to the basic nature of an assets account, that is it is contrary to the debit nature of the assets account and hence are credit in nature.
Examples of Contra Assets Account are:
Accumulated Depreciation Account which is essentially Plant Assets Account also has a credit balance as it is used to depreciate the asset, or in other words, reduce the value of the assets, hence it also has a credit balance.
When there are balances in the Account Receivables Account that are not paid to the company or have a very low probability of being paid, they are recorded in a separate account called Bad Debts Account, which is also credit in nature.
See less