Authorised and regulated by the Financial Services Authority

Accrued liabilities

Also known as 'Provisions' - a liability position on the Balance Sheet According to trading law, Provisions are liabilities, losses or expenses that are unpredictable in terms of accrual or amount.

By creating Provisions, the expenses appearing later on are imputable to the periods when they occur. The uncertainty of number or maturity of liabilities creates a difference between a company's Provisions and exactly determinable liabilities.

Examples of Provisions: Pension Fund Provisions and Tax Provisions.

Characteristically, Provisions represent an expense within the profit and loss account for the year they are created in, and therefore they lower the annual surplus, without a drain on liquid assets for the current business year.

With an extremely prudent accounting policy, companies can significantly reduce their annual surplus and, as a consequence, their tax burden by creating Provisions. Cash flow is a key figure that takes into account and adjusts Provision creation.

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