Journal Entry for Contingent Liability

Journal Entry for Contingent Liability

Contingent liability is recognized by the following entry. The loss is debited and the contingent liability is credited in the books of accounts. It is important to remember that only certain or probable liability is recognized, where the possible contingent liability is only disclosed in the financial statement.

Date	Particulars	Dr.	Cr.
	Damages (P&L)	$ xxx
	Provision for Damages		$ xxx

 

Contingent liability Journal Entry Example

Confirmed damages of amounting $ 2 million would be recorded as under

Date	Particulars	Dr.	Cr.
	Damages (P&L)	$ 2,000,000
	Provision for Damages		$ 2,000,000

Journal entry for Contingent Asset

Journal entry for Contingent Asset

There is no journal entry for contingent asset, because contingent asset is a possible future asset depends on the confirmation of a future event.  We know that in accounting, we only record the historical events. Thus the contingent asset is not recorded in the books of accounts. However, it is important to remember those contingent assets are disclosed in the financial statements.

Income Tax Journal Entry

Income Tax Journal Entry

Income tax is an expense for the business. Thus income tax is debited and a liability is created with the name of provision for tax. The tax liability is normally is expected to be paid in next year.

Date	Particulars	Dr.	Cr.
	Tax Expenses	$ xxx
	Provision for Tax		$ xxx

Tax Payment Journal Entry example

Following entry shall be recorded on the payment of tax. The provision shall be debited and cash would be credited.

Date	Particulars	Dr.	Cr.
2014	Provision for Tax	$ xxx
2014	Cash		$ xxx

Tax journal entry Example

Business income =40,000

Tax rate= 30%

Tax expenses shall be recorded at the end of the year in 2014 by following entry. Tax expense is debited and provision for tax/tax liability is credited.

Date	Particulars	Dr.	Cr.
2014	Tax	$ 12,000
2014	Provision for tax		$ 12,000

Tax shall be paid in 2015 and the following entry shall be recorded. Provision shall be removed by debiting the provision and crediting the cash.

Date	Particulars	Dr.	Cr.
2015	Provision Tax	$ 12,000
2015	Cash		$ 12,000

Provision Journal Entry

Provision Journal Entry

In this article we would explain the Provision Journal entry. The provision is a kind of liability, which can be reasonably estimated. Thus a liability is created by debiting the expenses and crediting the liability.

Date	Particulars	Dr.	Cr.
	Bad Debt	$ xxx
	Provisions for Bad Debt		$ xxx

Provision Settlement Journal Entry

Provision is settled by debiting the provision and crediting the cash/other asset as case may be. Creation of provision and settlement of provision has been explained with an example below

Date	Particulars	Dr.	Cr.
	Provisions for Bad Debt	$ xxx
	Debtors/Cash		$ xxx

Provision Journal Entry Example

Bad debt provision is created amounting $2000 for next year. The actual bad debts for next year were also $ 2000.

This Year Entry

In the current year provision is created by debiting the expense and crediting the provision for that expense.

Date	Particulars	Dr.	Cr.
	Bad Debt	$ 2000
	Provisions for Bad Debt		$ 2000

Next Year Journal Entry

In next year, when actual expense was confirmed, then the provision was removed by debiting the provision and crediting the relevant head (in this case debtor).

Date	Particulars	Dr.	Cr.
	Provision for Bad Debts	$ 2000
	Debtors		$ 2000

Sales Return Journal Entry

Sales Return Journal Entry

In this article we would discuss and explain the Sales return journal entry. Sales return is basically a revenue contra account. This account is used to record the return of sales from the customer.

Separate account is used to record the sales return to exercise better control over the sales. Sales return is account is debited and customer account is credited in the books of account. In case of cash sales return, the cash account is debited in place of customer.

Date	Particulars	Dr.	Cr.
	Customer/Cash	$ xxx
	Sales Return		$ xxx

Sales Return Journal Entry Example

1.    Good returned to Mr. Ali of $ 8000.

2.    Cash Sales return amounting $ 5000.

Date	Particulars	Dr.	Cr.
2014	Sales Return	$ 8,000
2014	Ali A/c		$ 8,000

Date	Particulars	Dr.	Cr.
2014	Sales Return	$ 8,000
2014	Cash		$ 8,000

Sales Return Closing Journal Entry

At the end of financial year, Sales return can either be closed in Sales account or directly in to profit & loss account. The Journal entry under both methods have shown below

Method # 1

In this method Sales are reduced by the debiting the Sales and crediting the sales return account at the end of financial year.

Date	Particulars	Dr.	Cr.
2014	Sales	$ 7,000
2014	Sales Return		$ 7,000

Method # 2

In this method Sales return are directly charged to profit & loss account as expenses. It is to be noted that The Sales return is debited to profit & loss account just to reduce the impact of sales.

Date	Particulars	Dr.	Cr.
2014	Sales Return	$ 7,000
2014	Profit & Loss A/C		$ 7,000