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Contingent Liabilities - Essay Example
Pages 3 (753 words)
Provisions are the most important concept for the one studying accounting. Without the understanding of the concept of provisions it is not possible to understand the true nature and purpose of the subject of accounting. Accounting is a language used to record, summarize and report the financial information of the business to the user of that information…
From this definition, it can be viewed from two aspects. The first aspect of the definition of provisions describe that the provisions are actually the liability. Provisions are directly referred to as the liabilities of the business but not the usual and general liabilities which are recognized in the balance sheet of the business. Provisions are the special type of liability of the business that is described as another head in the capital and liabilities portion of the balance sheet.
The other main feature described by the definition of the provisions is that it is a liability of uncertain amount and uncertain timing. It means that the provisions are not certain in terms of their amount and timing but their nature is known to the accountant. It is known that a certain expense of certain type is going to take place in the future but the exact amount and exact time of the expense is not known to the accountant of the business. Therefore, provisions are the best estimates of the expenses that are going to take place in the future.
Liability is defined in the International Accounting Standards as the present obligation as a result of past events and the settlement of which is expected to result in an outflow of resources. ...