Accrual Vs Provision - Top 4 Best Differences (With Infographics)

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Accrual vs Provision
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Madhuri Thakur (https://www.educba.com/author/madhuri-thakur/)
 (https://www.educba.com/asset-purchase-vs-  (https://www.educba.com/actuary-vs-
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Updated June 26, 2023
Difference Between Accrual vs Provision

The accrual basis of expense accounting means reporting that expense and the related
liability in the given period in which accrual expense occurs. For example, if the company
schedules an employee expense in November, it will pay in December. The provision mea
keeping safety money aside against any probable future losses or payments the firm mig
need. It is uncertain and cannot be calculated exactly in advance. Still, the firm must make
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provisions for future losses in advance to cover these losses.
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Accrual
Accrual basis of accounting of sales to the reporting of that receipt and the related
receivable in the given period in which accrual of sales is earned and that period is later o
before the cash receipt of that revenue. For example, interest income on the investment o
bonds in November, but the cash will not come until January of next year.
Examples of Accruals include
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Interest Income and interest expenses

when a company delivers a good or service before taking cash
when a company records a salary expense before paying the employee with cash
Employee Bonus
Interest on Loans and advances (https://www.educba.com/loans-vs-advances/)
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Insurance Premium
Interest Payable
Provisions
com/)
Provisions for account receivables that the firm makes generally in advance made on futu
receivables that some of the receivables will turn bad and might not be recovered. A cert
regulatory guideline needs to be met, and the firm should be able to justify the provision
for the given period.
Types of Provisions
An organization may have different provisions, such as a non-performing assets provision

standard provision on assets, a provision for depreciation, probable future losses on the
sale of the fixed asset, and a provision for the debtor that might not recover. IFRS refers
a provision (https://www.educba.com/ifrs-in-india/) as a reserve; generally, provision
and reserves are not the same concepts. An organization earns profit through reserves
while it prepares for future liabilities by setting aside funds as provisions to support its
financial position during expansion or growth.
Few other examples of provision
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Provision
com/)
for Depreciation
Provision for non-performing assets
Standard provision for advances
Pension provision
Guarantees
Provision for bad debts
Head To Head Comparison Between Accrual vs

Provision (Infographics)
Below is the top 4 difference between Accrual vs Provision
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Key Differences Between Accrual vs Provision

Both Accrual vs Provision are popular choices in the market; let us discuss some of the
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significant Difference Between Accrual vs Provision.
The accrual basis of accounting of an expense means reporting that expense and the
com/)
related liability in the given period accrual expense occurs. The provision means keeping
safety money aside against any probable future losses or payments that the firm might
need to pay in the future. It is uncertain and cannot be calculated exactly in advance.

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The Accrual amount is certain, and we can quickly deduct it without future prediction.
Provision is calculated based on future prediction; it is not certain and complex to estima
Accruals might not result in a decrease in earnings; they might increase earnings also in t
given period. The provision always incurs expenses and reduces the company’s earnings
when charged to the income statement.
Accrual vs Provision Comparison Table

Below are the four topmost comparisons between Accrual vs Provision
Accrual Basis Deferral Basis

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Accrual works on the matching principle Provisions work on the prudence principle
of an account which says revenue of accounting, which says that the
reporting
com/)in a given period should be company should anticipate profit later an
exactly matched with an expense in the make the required provisions for any
same period. probable future losses.
The Accrual amount is certain and can be Provision is calculated based on future
easily taken out without future prediction. prediction; it is not certain and complex to
estimate
Accruals might not result in a decrease in Provision is always expensive and is

earnings; they might increase earnings charged to the income statement,
also in the given period. bringing down the company’s earnings.
Example- Insurance premiums, Prepaid Examples- Provision for bad and doubtfu
Expenses, etc. debtors, Depreciation Provision, etc.
Conclusion
Thus, Accrual vs provision is an essential method for financial accounting and reporting.
The basic is to check the firm from making any cash inflows and outflows, and it is always
good to recognize expenses whenever they occur. It is always good to make provisions
whenever management feels a certain amount can go bad in the future because
management runs the show, and they know about their clientele more than any other
third-party member. Accrual accounting is an industry standard. New concepts like Accru
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vs Provision are gaining traction to make accounting more ground connected to reality a
g g g g y
meaningful to all the readers of financial statements.
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This has been a guide to the top difference between Accrual vs Provision. Here we also
discuss the Accrual vs Provision key differences with infographics and a comparison table
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Accrual Vs Provision - Top 4 Best Differences (With Infographics)

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Accrual Vs Provision - Top 4 Best Differences (With Infographics)

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Updated June 26, 2023

Difference Between Accrual vs Provision

Examples of Accruals include

Learning Paths @ $19

Interest Income and interest expenses

An organization may have different provisions, such as a non-performing assets provision

Few other examples of provision

Learning Paths @ $19

Most Popular Learning Paths in Web Dev, Programming, Cyber

Head To Head Comparison Between Accrual vs

Key Differences Between Accrual vs Provision

Learning Paths @ $19

Accrual vs Provision Comparison Table

Accrual Basis Deferral Basis

Accruals might not result in a decrease in Provision is always expensive and is

Learning Paths @ $19

1. Current Account vs Capital Account (https://www.educba.com/current-account

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Financial Analyst Masters

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iPhone & iPad (https://apps.apple.com/app/educba-learning-app/id1341654580)

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