Difference between accrual and provision.

Banking & FinanceManagementCompanies/Organisations

The major differences between accrual and provision are as follows −

Accrual

  • Records expenses incurred but payment yet to made.

  • Existence of liability is certain.

  • Works on matching concept.

  • Each revenue reporting should match equal expense in a period.

  • Made on basis of actual documentary evidence.

  • Accrual amount is realized and certain.

  • Amount of accrual is a specific amount.

  • Quantified with accuracy.

  • May or may not increase income all time.

  • Prepaid expenses, insurance premium etc.

Provision

  • Records expense that have not yet been incurred.

  • Existence of a liability is not entirely certain.

  • Works on prudence concept.

  • Business should never anticipate profit, but should make all provision for any future loss that going to occur.

  • Made on basis of estimation/information from credible source/less substantial documentary on probably occurrence of loss.

  • Provision amount is not certain.

  • Anticipated amount is an estimation one.

  • Not necessarily be accurately quantified.

  • Results in decline profits.

  • Depreciation provision, provision for bad debt etc.

raja
Published on 25-Jul-2020 06:42:57
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