How to make a provision?
David Harrison
davidharrisoncga at gmail.com
Tue Nov 16 12:43:42 EST 2004
On Tue, 16 Nov 2004 14:39:38 +0100, mvillarino <mvillarino at dubmail.net> wrote:
> Sorry, my English is ugly...
No, problem. It's actually pretty good!
>
> Well, after 23 months and 61241 km with the same tires, I had to change them,
> so I've made a 99,49 EUR expense. Now, I want to make a provision (reserve)
> for tires (4,33 EUR/month).
> According to spanish general accounting plan, I'll have to do the
> following steps:
> a) Make an liability accoun called "143 Provision to change tires" (tires,
> oil, fuel, etc, etc, etc).
> b) Monthly, charge 4,33 EUR into a expenses category called "6223 Car repair
> and Maintenance" (well, the .1 is not in the spanish gen. acc. plan). A
> Schedule solves this.
>
> It's Ok, but my problem comes when I change tires.
>
> c)Pay the cost of tires to the liability account "400 ....Budgets for Running
> Expenses"
> d) Pay to Income category "790 Excess of provision" the remainder of the 4,33
> per month, after the payment.
>
> Well, I don't wnow exactly wich are the from and to account in each of the
> last c) and d) operations,
> could anyone give me an example?
Here's my attempt:
b) this is the monthly accrual of the provision:
6223 Car repair and maintenance 4,33
143 Provision to change tires 4,33
c) I'm not sure how account 400 ties in, but this is what I would do:
143 Provision to change tires 99,49
??? Bank account 99,49
d) The remaining balance in the provision account:
143 Provision to change tires xx,xx
790 Excess of provision xx,xx
If it were me, instead of crediting account 790 "Excess of provision"
in (d), I would credit 6223 "Car repair and maintenance". The reason
for this is that I have over-accrued the expense. Either way, your
net income would be the same. But if you use account 790, both your
income and expenses would be overstated.
Hope this helps.
Dave
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