Recording for Provisions & Depreciation

1. Core Concept

  • Provision: An amount set aside out of profits to cover a known liability or expense whose exact amount or timing is not yet fully determined (e.g., estimated audit fees, accrued electricity charges, taxes, or potential bad debts).
  • Accrual Principle: Provisions ensure expenses are recognized in the period they occur—matching expenses against current revenues—regardless of when actual cash is paid out.
  • Voucher Used: Journal Voucher (F7), because creating a provision is a non-cash accounting adjustment.
Accounting Rule for Provisions:
Debit (Dr) → Expense Account (Reduces current profit in Profit & Loss A/c)
Credit (Cr) → Provision Account (Creates a Current Liability on Balance Sheet)

2. Ledgers Required to be Created First

Before recording provision entries, create these ledgers under their respective groups:

Ledger Name Group (Under) Ledger Type / Classification
Audit Fees A/c Indirect Expenses Expense
Provision for Audit Fees Provisions / Current Liabilities Liability
Electricity Charges A/c Indirect Expenses Expense
Provision for Electricity Provisions / Current Liabilities Liability
Income Tax Expense A/c Indirect Expenses / Taxes Expense
Provision for Income Tax Provisions / Current Liabilities Liability
Legal Charges A/c Indirect Expenses Expense
Provision for Legal Expenses Provisions / Current Liabilities Liability
Bad Debts Expense A/c Indirect Expenses Expense
Provision for Bad & Doubtful Debts Provisions / Current Liabilities Reserve / Liability
Staff Bonus A/c Indirect Expenses Expense
Provision for Bonus Provisions / Current Liabilities Liability

3. How to Record Provisions in TallyPrime

  1. Go to Gateway of Tally → Vouchers → Press F7 (Journal).
  2. Press Ctrl + H and select Double Entry mode (By/To or Dr/Cr).
  3. First Line: Select the Debit (Dr) Expense Ledger and enter the estimated amount.
  4. Second Line: Select the Credit (Cr) Provision Ledger.
  5. Enter Narration (e.g., "Being provision made for estimated audit fees").
  6. Press Ctrl + A to save.

4. Complete Practice Set (7 Entries)

Record Provision Entries (F7)

Entry No. Date Particulars (Debit / Credit) Debit Amt (₹) Credit Amt (₹) Narration
1 2-3 Dr: Audit Fees A/c

Cr: Provision for Audit Fees		 35,000

—		 —

35,000		 Being provision made for annual audit fees
2 2-3 Dr: Electricity Charges A/c

Cr: Provision for Electricity		 18,500

—		 —

18,500		 Being estimated electricity bill provided for March
3 2-3 Dr: Income Tax Expense A/c

Cr: Provision for Income Tax		 1,20,000

—		 —

1,20,000		 Being provision for income tax created for FY
4 2-3 Dr: Legal Charges A/c

Cr: Provision for Legal Expenses		 15,000

—		 —

15,000		 Being provision created for pending legal fees
5 2-3 Dr: Bad Debts Expense A/c

Cr: Provision for Bad & Doubtful Debts		 22,000

—		 —

22,000		 Being 5% provision created for doubtful debts
6 2-3 Dr: Staff Bonus A/c

Cr: Provision for Bonus		 50,000

—		 —

50,000		 Being annual staff bonus provision recorded
7 2-3 Dr: Maintenance Charges A/c

Cr: Provision for Maintenance		 12,000

—		 —

12,000		 Being provision for outstanding maintenance charges

5. Checking Effect & Report Verification

1. Impact on Balance Sheet:

  • Navigation Path: Gateway of Tally → Balance Sheet
  • Where to check: Expand Current Liabilities → Provisions to see all liability balances accrued.

2. Impact on Profit & Loss Account:

  • Navigation Path: Gateway of Tally → Profit & Loss A/c
  • Where to check: Expand Indirect Expenses to verify that estimated expenses are debited against current period income.

3. To Check / Delete / Modify Provision Entries:

  • Navigation Path:
    Gateway of Tally → Display More Reports → Account Books → Journal Register
    (Shortcut: Press Alt + G → Type Journal Register)
  • Action: Select the month → Press Enter on the transaction to edit. Press Alt + D inside the voucher to delete it.