A Yearly Tax

Decrease in provision​ for Tax on Income / Profit





Decrease in Provision for Cambodia Tax


Decrease in Provision is contra-expense (Dr. Provision , Cr. Expense)  for accounting purpose, and contra-expense means that it is other income ( contra-expense). Other income/contra-expense (decrease in provision) is income for accounting purpose , but Cambodia Tax allowed  this decrease in provision ( other income) is not taxable income for tax on income (profit), so it means that it is deductible expense for tax purpose.

We will make the two cases for explanation as follows.

Case 1-Year 2018

For example Year 2018, Company A made warranty policies for goods sold to customers. Warranty expenses for computer, car, motor repair etc with specific period after sale, but we do not be sure whether customers come to repair these inventories or not and how much we will spend for repair. For Accounting standard, it required us recognized estimated amount as expense ( provision) when we sold inventories to customers, but Cambodia Tax law does not allow these expense are deductible expenses unless they inured physically. Now assume provision for warranty expense is $3,000.

Dr. Warranty expense……$3,000

Cr. Provision for warranty………….$3,000

Note:

1.Warranty expense ( increase in provision) of $3,000 is accounting expense, but

2.Warranty expense ( increase in provision) of $3,000 is non-deductible expense for tax on income (profit).

Case 2-Year 2019

Assume in 2019 no customers come to repair and warranty contracts are expired, so company A will reverse entry  as follows.

Dr. Provision for warranty……$3,000

Cr. Warranty expense……………………..$3,000

Note:

1.Warranty expense / other income ( decrease in provision) of $3,000 is accounting contra- expense (other income), but

2.Warranty expense/ other income ( decrease in provision) of $3,000 is deductible expense ( or it is not taxable income) for tax on income (profit).



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