Difference between Expense and Provision for Expense (Expense Payable)

Expense

Provision for Expense

Expense Entry is passed if Bill or Invoice has been received from party

It is a routine Entry

Expense Dr

            To Party

Provision for expense is made at month end for those parties/vendors who do not submit their bills

It is a book closure entry like

Expense Dr

      To Provision for Expense

(Provision for expense is also called

Expense Payable)

Example

Telephone Bill from Airtel

Received of Rs 2500.Amount paid

by cheque

Entry  

When Bill Received

Telephone Exp Dr 2500

        To Airtel              2500

When Payment Made

Airtel                        2500

           To Bank                           2500

Example

At the month end, The Company estimated that telephone expense for the month is Rs2500,bill not yet received from Airtel

Entry

When Provision Made  

Telephone Exp 2500

                To Provision for Expense 2500

When Bill Received next month of Airtel of 2500

Provision for Exp       2500

            To Airtel              2500

When Payment Made of 2500

Airtel                        2500

           To Bank                        2500

Note:-

Instead of Provision for expense, some company’s use Ledger Telephone Expense Payable

Suppose Bill Received next month of Airtel of 2700

Provision for Exp    2500

Telephone Exp       200

        To Airtel                2700

When Payment Made

Airtel                        2700

      To Bank                           2700

Suppose Bill Received next month of Airtel of 2100  

Provision for Exp       2500

To Airtel                              2100

To Excess Provision Written off 400              

When Payment Made

Airtel                        2100

      To Bank                2100