[amp_mcq option1=”Liability” option2=”Reserve” option3=”Provision” option4=”Contingent liability” correct=”option3″]<\/p>\n
The correct answer is C. Provision.<\/p>\n
A provision is a liability that is not recognized as a liability because it is not certain that a future outflow of resources will be required to settle the obligation. A provision is recognized when an entity has a present obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and the amount of the obligation can be reliably estimated.<\/p>\n
In the case of bad debts, a provision is recognized when it is probable that a customer will not pay their debt. The amount of the provision is estimated based on the entity’s historical experience of bad debts.<\/p>\n
A liability is a present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.<\/p>\n
A reserve is a fund that is set aside for a specific purpose, such as to meet future expenses or to provide for contingencies. Reserves are not liabilities, because they are not obligations to pay out resources.<\/p>\n
A contingent liability is a potential liability that arises from an existing situation, but is not recognized as a liability because it is not probable that an outflow of resources will be required to settle the obligation, or the amount of the obligation cannot be reliably estimated.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”Liability” option2=”Reserve” option3=”Provision” option4=”Contingent liability” correct=”option3″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-50026","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"\n