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+--- Thread: provision / accrual (/showthread.php?tid=5486)
provision / accrual - tango_acc - 03-01-2009
hi all
i understand that when no bill is received for the month that incurred expenses, we need to accrual or make provision. for example electricity bill.
what i need to make it clear is the expenses that we need to pay quarterly or bi monthly or yearly we also need to make provision monthly.
may i know why we need to make provision for expenses that pay out not monthly basis like yearly, half yearly or quarterly. 1 reason is to avoid a suddenly increase in p&l during the month that book the actual expense? i do not think this is the main reason. can explain with example what is the real reason?
thanks
- kamranACA - 03-02-2009
Dear,
All the listed entities have to issue quarterly accounts. In such scenario it is imperative to follow the accrual method uniformly all over the year.
In other cases, the managment feels it appropriate to prepare the monthly accounts (for decision making purposes) strictly on the accrual basis, so that the results must not distort by charging such expenses on payment basis.
Please keep in mind that when IFRSs stipulate to follow accrual method, it is not specific for annual balance sheet, rather, it is required to be followed uniformly for all the financial statements reported to the stakeholders. Being a best practice and supposedly giving uniform undistorted results, it must also be followed for all monthly accounts as well.
Regards,
KAMRAN.