What is the Difference Between Accruals and Provisions?
🆚 Go to Comparative Table 🆚The main difference between accruals and provisions lies in the level of certainty associated with each concept. Accruals refer to the recognition of expenses and revenues that have already been incurred but not yet paid, while provisions are allocated for probable future expenses with an uncertain amount or date.
Accruals:
- Occur for both expenses and revenues.
- Represent costs that have already been incurred but not yet paid off.
- Example: Interest paid to bondholders each quarter in a publicly listed corporation's financial statement.
Provisions:
- Made for probable future expenses where there's uncertainty about when they will be paid.
- Help paint a more accurate picture of a company's financial situation.
- Examples: Estimated loss in value of inventory due to obsolescence, tax provisions to meet income tax requirements.
In summary, accruals are related to expenses and revenues that
On this pageWhat is the Difference Between Accruals and Provisions? Comparative Table: Accruals vs Provisions
Comparative Table: Accruals vs Provisions
Here is a table comparing the differences between accruals and provisions:
| Feature | Accruals | Provisions |
|---|---|---|
| Definition | Accruals refer to the recognition of expenses and revenue that have been incurred but not yet paid. | Provisions are amounts set aside to cover probable future expenses or losses. |
| Certainty | Accruals are certain, as they represent costs that have already been incurred. | Provisions are uncertain, as they are based on educated guesses about future expenses. |
| Timing | Accruals are related to costs that have already been incurred but not yet paid. | Provisions are made for future obligations whose specific amount or date is unknown. |
| Purpose | Accruals are used to track and record expenses and revenue in the correct accounting period. | Provisions act like a rainy-day fund, helping companies manage uncertain future expenses or losses. |
| Examples | - Interest due to bondholders in a publicly listed corporation. - Expenses related to credit transactions between companies. |
- Loan loss provions made by banks for unpaid loans. - Tax provisions to meet income tax requirements. |
In summary, accruals are certain and represent costs that have already been incurred but not yet paid, while provisions are uncertain and are set aside to cover probable future expenses or losses.
Read more:
- Accruals vs Prepayments
- Accrual vs Deferral
- Liability vs Provision
- Depreciation vs Provision for Depreciation
- Cash vs Accrual (Accounting)
- Accrued Expense vs Accounts Payable
- Cash Accounting vs Accrual Accounting
- Reserve vs Provision
- Provision vs Contingent Liability
- Accounts Payable vs Accounts Receivable
- Accounting Policies vs Accounting Estimates
- Bookkeeping vs Accounting
- P&L vs P&L Appropriation Account
- Liabilities vs Expenses
- Accounts Receivable vs Notes Receivable
- Balance Sheet vs Profit vs Loss
- Account Payable vs Note Payable
- Statement of Affairs vs Balance Sheet
- Accounting vs Auditing