Reserves for future expenses - these are the funds that are shown in the accounting records of the organization. The balances intended for different purposes are shown in the corresponding article of the reporting document. The article “reserves for future expenses” is contained in the section on short-term liabilities of the balance sheet. The income and application for the previous and reporting year, as well as balances at the beginning and end of a certain period, are shown in the statement of changes in equity.
An organization can create a reserve for future expenses. It may include funds aimed at the following:
- Annual length of service benefit.
- Paying employees leave .
- Repair of fixed assets.
- Payment of incentives on an annual total.
- Warranty service and repair.
- Preparatory work due to the seasonal type of activity of the enterprise.
- Repair of items that are intended for rental (rental) in accordance with the rental agreement.
- Land reclamation and other environmental protection measures.
- Other unforeseen goals provided for in the legislation, as well as regulatory legal acts.
There are many ways to account for funds. This, in turn, provides a certain freedom in choosing the reflection of the facts that take place in the economic activity of the enterprise. The impact of different accounting methods on the cost or income and, accordingly, on the financial result can be quite significant depending on the goals that the organization pursues in its activities.
Reserves for future expenses are inventoried at the end of the reporting year. The main purpose of this operation is to verify the feasibility of creating and the correct calculation of the reserve funds.
Reserves of future expenses are inventoried on the basis of orders (orders) of management. A standard form for such an inventory has not been developed; in this regard, the accountant has the right to develop his own form. If the company’s accounting coincides with tax accounting, then this inventory will serve as both an inventory document and a register.
The specialist identifies the amounts transferred to the reserve and correlates them with all payments that were made from it. It so happens that there are not enough spare funds. In this case, the amounts that are allocated from other sources will be reflected in other expenses. If expenses are less than the reserved amounts, then in the process of calculating income tax residual funds are included in non-operating income.
Residues allowed to carry over to the coming year. This is possible, for example, if one of the employees did not take advantage of the vacation, or the company dragged on the repair of fixed assets. These amounts are included in the reserve for the coming year and are not taken into account when calculating income tax in the current year.
However, in some cases, there is a need to clarify the transferred amount. For example, regarding the reserved funds allocated for warranty repairs, the share of the actual costs of repair work in the total revenue for the products covered by this warranty service is taken into account. The transfer of residual funds is possible if the accounting policy of the enterprise provides for the same type of reserve in the coming year.
It should be noted that earlier, in order to avoid sharp jumps in the cost of production, as well as to evenly distribute expenses for the period, the right to create reserves for future expenses was widely used at enterprises. Today, these funds have a slightly different status. Considering them from the side of financial statements, they are the estimated liabilities of the company.