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Hi sir.I am a little bit lost,you said we must ignore that 500 as an over or under payament and just Focus on that it is a opening debit and credit,and later you said that 500 dollars was over provision,or how do you know that we over provided because we just have a o/p balance with no estimate as yet?
Hi,
I’m essentially saying that you don’t need to think of the opening balance as either an over or under provision from the previous year as it can lead to complications. The easiest thing to do is just to take the opening balance and put it on the correct side of the T-account.
The under/over provision comes from the fact that we estimated last year’s current tax that was then paid this year. The payment made will either be more or less than the prior year estimate depending on the assessment of our tax bill by the tax authorities.
Hope that helps.
Thanks
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