How to make a provision?

[David Harrison]

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