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Apologies if this question has been asked before.
Could you tell me what the difference is between an accrual and a provision (IAS37)?
I see from the notes that an accrual is an amount owing for which we have not yet received an invoice, whilst a provision is a liability where the timing or amount is uncertain.
For example, if I have not yet received my electricity bill for the quarter and I am unsure of the exact amount of the invoice, would this be classified as an accrual or a provision (both where amount is uncertain)?
Thanks in advance for your help.
Michael
An accrual is where we are certain that we will be owing money (even if we are not certain of exactly how much).
A provision if where we might be owing money but are not certain that we will be having to pay.
Electricity is an accrual – we know that we have used electricity and we are certain that we are going to have to pay something.
Have you watched my free lectures on accruals and on IAS 37? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Hi John,
Thank you for your reply and for the clarification between an accrual (we are certain that we will owe money) and a provision (we might owe money but are not certain).
Yes, I’m currently watching the lectures on accruals and IAS 37 which is how my question arose as I wasn’t clear on the distinction between the two.
Thanks again.
Kind regards
Michael
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