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

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

• A. Expense (SPLOCI)
• B. Provisions
• C. Liabilities (SFP)
• D. Revenue

Answer: (A)

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.