Understanding Provisions and Accounting Treatment of Provisions

At the end of the financial year when books of accounts are closed, certain provisions need to be created. The practice of creating provisions is in line with Matching Principle of Accounting. According to Matching principle, expenses incurred in a financial year must be recorder in the same financial year to which it relates. However, sometimes the exact amount of expense is not known at the end of financial year. Provision is created in order to recognize such accrued expenses for which exact amount is not yet known. Hence, a Provision for expense basically recognizes the liability of an organisation towards expenses related to a financial year. Please refer to the below points to further understand provisions.



Penalties for non compliance under GST

One of the remarkable changes that GST brought with its implementation is greater emphasis on compliance on part of an assessee. GST Act prescribes several provisions related to interest, penalty, fees and even imprisonment in case of severe defaults. We all take care of the major compliance requirements like filing returns regularly, charging the right type of tax (i.e. CGST & SGST or IGST), charging appropriate rate of tax etc. However, we often ignore small rules and guidelines prescribed by GST Act thinking they are too sundry to follow and they hardly attract any penalty or fees. Notwithstanding the scale of compliance requirement, we must be aware that even the minor case of non-conformance may attract considerable penalty in monetary as well as non-monetary terms. Here is a list of such small non-conformance that all tax payers under GST must bear in mind.


Zero Rated Supplies under GST

In order to promote exports, Government provides many benefits and reliefs to export houses time and again. One such benefit provided by current Government is treatment of export of goods and/or services as "Zero Rated Supplies". Any supply of goods and/or services as an export shall be treated as "Zero Rated Supplies" even though such supplies are taxable under GST in domestic market. This move reduces the prices of commodities or services being exported and increases competitiveness of our product / services in the international market. Moreover, higher exports also means greater balance of payment for Government.


Understanding BankReconciliation Statement

It is one of the primary responsibilities of an accountant to keep an eye on the bank balances for each bank account of the company. The balance as shown as per our books of accounts may not be the same as reflected in bank statement. This happens due to many different reasons. Hence, any difference in our books of accounts and in the bank statement must be reconciled to find and identify the differences. This article captures various terms related to bank reconciliation as well as discusses major reasons that cause difference in balances between books of accounts and bank statement. It also explains methods of bank reconciliation.



You might have often heard the word "Retained Earnings" and wondered what it means? Just like individuals save a portion of their salary to meet future contingencies, companies also do the same.Companies keep a portion of their profits aside for various purposes like paying debts, as contingency fund or to be reinvested into core business for expansion. Such savings are called "Retained Earnings" in accounting terminology.


Accrued Expenses amp Accounting Treatment of Accrued ExpensesAdd subheading 1

In last blog we discussed about Accrual Basis of Accounting v/s cash basis of accounting system. We also understood concept of accrued Income and treatment of accrued income in balance sheet and P&L accounts. In this article we are going to discuss about Accrued Expenses. The concept of accrued expense is also a part of accrual basis of accounting system.

What is Accrued Expense ?

Financial Management