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A provisions main purpose is to allow a current year’s balance to become more accurate. This is because there may be costs that could be accounted for in either the previous financial year, or the current financial year. Costs that belong to one specific year could be quite misleading if accounted for in the future or in the past, depending on the circumstances.
Provisions are recorded to present the true and fair view of financial statement of the company. Provisions are present obligations (legal or constructive) for uncertain time or amount so should be presented in the financial position.
Provision needs to be made against revenue generated in a particular accounting period as per matching principle failing which the financial statements doesn't give a true and fair view
to meet anticipated & known losses & liabilities
to present correct financial statement
Without provision it means inaccurate financial report.
Provision are recorded to make appropriation from P & L account for those periodic expenses which has not been accounted for that period - so as to give true & fair picture of P & L and Balance Sheet
To have a profit and loss without any omissions as the expenses pertaining to the given period should have been reported. This will enable the shareholders to know the actual position of the position in terms of financial results. Non paid expenses pertaining to the given period should be booked so as to be paid at a later date.
