How can I correctly form provisions in my balance sheet?
August 20, 2022 | 50,00 EUR | answered by Laura Hohenwarter
Dear tax advisor,
my name is Felix Busse and I run a small business in the catering industry. In my balance sheet, I have not yet made any provisions and I am now wondering how best to approach this. I am unsure how to correctly account for provisions and what impact this could have on my company.
I have recently heard that provisions are used to account for future obligations of the company that are already known at the balance sheet date but cannot yet be accurately quantified. Therefore, I am wondering what types of provisions could be relevant for my company and how I should correctly disclose them in my balance sheet.
I am concerned that I may make mistakes in accounting for provisions, which could then lead to issues during the annual audit or in tax-related matters. Therefore, I would like to know from you how I can correctly form provisions in my balance sheet to avoid errors and legally protect my company.
Could you provide me with specific steps or guidelines on how to correctly account for provisions in my balance sheet? Are there any deadlines I need to consider or specific regulations I should take into account? I would greatly appreciate your professional advice and support on this matter.
Thank you in advance.
Kind regards,
Felix Busse
Dear Mr. Busse,
Thank you for your inquiry regarding the formation of provisions in your balance sheet. Provisions are indeed important items in a company's balance sheet, as they serve to account for future obligations as of the balance sheet date that are already known but cannot yet be precisely quantified. It is therefore important to account for provisions correctly to legally protect your company and avoid errors.
For your company in the gastronomy industry, various types of provisions may be relevant. For example, you could create provisions for vacation pay, warranty or guarantee obligations, returns of goods, or potential losses from pending transactions. It is important that you are aware of your company's exact obligations and account for them accordingly in your balance sheet.
To correctly form provisions, you should first estimate the amount of the obligation. You can base this on past experience or seek external advice. Then, you should record the provision in the balance sheet as a liability. It is important to clearly name the provision and specify the reason for forming it.
There are no specific deadlines you must adhere to when forming provisions. However, you should regularly review the provisions and adjust them if the obligations change. It is also important to transparently and comprehensibly document the provisions to avoid potential issues during the annual audit.
It is advisable to seek support from an experienced tax advisor or accountant when forming provisions to ensure they are correctly accounted for. I am happy to assist you with any further questions or provide detailed advice.
I hope this information is helpful to you and look forward to supporting you in forming provisions in your balance sheet.
Best regards,
Laura Hohenwarter
