What is the journal entry to recognise a provision?

What is the journal entry to recognise a provision?

• A. Dr Revenue; Cr Provisions
• B. Dr Provisions; Cr Cash
• C. Dr Expense (SPLOCI); Cr Liabilities (SFP)
• D. Dr Assets; Cr Provisions

Answer: (C)

When a provision is recognised, you’re recording a present obligation that will likely lead to an outflow of resources, so you reflect this in both the income statement and the balance sheet. The correct entry debits an expense (the expected cost, shown as SPLOCI in the exam) and credits Provisions, creating a liability on the balance sheet for the future payment. Other options don’t fit because they either affect revenue (which would not recognise a new cost), or debit the liability or credit assets instead of creating the liability. The key idea is: recognise the cost in the period and set up a corresponding provision as a liability.

When a provision is recognised, you’re recording a present obligation that will likely lead to an outflow of resources, so you reflect this in both the income statement and the balance sheet. The correct entry debits an expense (the expected cost, shown as SPLOCI in the exam) and credits Provisions, creating a liability on the balance sheet for the future payment.

Other options don’t fit because they either affect revenue (which would not recognise a new cost), or debit the liability or credit assets instead of creating the liability. The key idea is: recognise the cost in the period and set up a corresponding provision as a liability.