In the journal entry to recognise a provision, which account is debited?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Study for the AAT Level 4 Drafting and Interpreting Financial Statements exam. Utilize flashcards and multiple choice questions with detailed explanations and hints. Prepare to ace your exam!

Multiple Choice

In the journal entry to recognise a provision, which account is debited?

Explanation:
When you recognise a provision, you reflect the expected cost as an expense and create a corresponding liability. The journal entry moves the anticipated cost into the income statement by debiting an expense account, and increases the liability by crediting a provision. So the account that is debited is an expense account, because you’re recognizing the cost associated with the obligation. For example, if you set up a provision for warranties, you would debit Warranty Expense and credit Provision for Warranties. Debiting a liability or revenue would not correctly record the recognition of the provision.

When you recognise a provision, you reflect the expected cost as an expense and create a corresponding liability. The journal entry moves the anticipated cost into the income statement by debiting an expense account, and increases the liability by crediting a provision. So the account that is debited is an expense account, because you’re recognizing the cost associated with the obligation.

For example, if you set up a provision for warranties, you would debit Warranty Expense and credit Provision for Warranties. Debiting a liability or revenue would not correctly record the recognition of the provision.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy