Provisions and reserves

[Delshad saleem]

What is the nature provisions and reserves accounts? i.e provision for bad debts,provisions depreciation,reserves for creditors etc.
Thanks in advance

 

[kirby]

The Provision account is an expense account. The Reserve account is a balance sheet account. Example- You want to establish a reserve for bad debts of $5,000.

Your entry is
DR Provision for Bad Debts $5,000
CR Reserve for Bad Debts $5,000

The Reserve for Bad Debts is also known as " The Allowance for Bad Debts"
It is a balance Sheet account shown under the Accounts Receivable Account on the Balance Sheet.
It nets the Accounts Receivable Account down to reflect what you really expect to collect out of the total accounts receivables.

 

[Hammed Olalekan Oyebamiji]

I disagree with Mr. Kirby concerning the treatment of provisions such as provision for bad debt. Every provision is an income to business enterprise. However,if the company makes provision for bad debt of $3000 at the end of the financial year,
Your entry will be like this:
DR P&L A/C
CR: Provision for bad debt account
Then to get value of debtor to use in balance sheet,
You then
Dr: Provision for bad debt acc
Cr: Debtor account