Provisional entry is an accounting treatment used to make a preliminary record of certain assets or liabilities where the actual cost cannot be accurately determined. The following is the correct way to make accounts for provisional accounting:
1.Recognition of provisional recorded assets or liabilities: The provisional accounting method should only be considered if accurate information on actual costs is not available. For example, when the purchase of goods is volatile, the market is unstable, or the value of assets is difficult to determine, the provisional accounting method can be used to record these assets or liabilities.
2.Select the appropriate provisional amount: When the provisional estimate is recorded, you need to select a reasonable provisional amount. This amount should be estimated based on relevant information and experience, as well as expected future value. Generally speaking, the provisional amount should be based on a comprehensive consideration of historical data, market trends, industry standards and other factors. At the same time, the provisional amount should be adjusted periodically to reflect changes in the actual situation.
3.Record provisional valuation in the books: The provisional amount is recorded in the corresponding account as the initial value of the asset or liability. In the case of assets, they should be charged to the "amortized" or "long-term amortized" accountsFor liabilities, they should be recorded in the "Accounts payable" or "Provision for expenses" account.
4.Subsequent adjustments to provisional estimates: Adjustments to provisional amounts may need to be made over time and as information is updated. If the actual cost has been determined, the original tentative amount can be compared to the actual cost and adjusted for the difference. If the provisional estimate is too high or too low, it needs to be revised. The revised amount shall be recorded in the corresponding account as a new provisional amount.
5.Disclosure of information on provisional accounting: Enterprises should disclose information about provisional accounting in their financial statements, including the method of provisional valuation and the basis for calculating the provisional amount. This helps investors and interested parties better understand the financial health and operations of the business.