Difference between Provision and Contingent liability
Difference between Provision and contingent liability has
been explained below;
1. Provision
Provision is future liability
as result of event which has already incurred. Provision can be reasonably
estimated. Example of provision includes provision for bad debt against credit
sales and warranty provision for items sold.
2. Contingent Liability
Contingent liability is a
liability which depends on the happening of future event. The amount of contingent
liability cannot be estimated reliably. As the amount cannot be estimated reliability
therefore contingent liability are not recognized in the books of accounts.
Example of contingent liability
is lawsuit against entity for damages and legal adviser is uncertain about the
outcome of the lawsuit.
