What is year end provisions and how to Enter in Tally?
What is year
end provisions and how to Enter in Tally?
A provision is an amount set aside
from a company's profits to cover and expected liability or a decrease in the
value of an asset, even though the specific amount might be unknown. A
provision is not a form of savings, instead, it is a recognition of an upcoming
liability. First we know about what is provision expenditure and liabilities
which is payable to next year. Provision is the year ended expenditure or
liability which will be payable to next year e.g. Salary Payable (for March),
Bonus Payable, Leave Encashment Payable or all other expenses which will be
paid in next year but period of expenses is current year. Suppose you have
telephone bill for the month of March but it is paid in April, it means
expenses incurred in March (which is year end) and paid in April so in this
case we pass a journal entry like:
Dr. Telephone Expenses
Cr. Expenses Payable or Telephone
Expenses Payable
In case of Salary some companies pay
salary in March for write off the liabilities but some pay liability in next
month so entry will be
Dr. Salary
Cr. Salary Payable / Expenses
Payable
Expenses Payable is common ledger
for all the provisions made under current liabilities.
You can also create GST Liability
for the month of March in payable account. But first you need to setoff input
credit with GST Liability, if any liability still comes after input credit
adjustment then pass another journal entry for GST Payable.
For Example If you have Rs. 5000
IGST tax liability and input credit IGST of Rs. 3000 then your IGST tax
liability will be Rs. 2000 and you need to pass 2 entries as follows:
Above is adjustment of input credit.
Next will be our payable tax liability for the month of March 2018.
Note: You can also make a direct payment to Integrated Tax
instead of create liability, but creating Liability as a payable ledger will
very helpful to easy reconciliation of Tax Liability.
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