That ‘General provisions’
General provisions articles of the balance, representing the funds allocated to the company as a means to pay for expected future losses. For banks, a General provision is considered to be supplementary capital under the first Basel accord. General provisions the balance sheets of financial firms are considered more risky asset, since it is implictly assume that fixed assets will be in default in the future.
Breaking down the ‘General provisions’
The names of the accounts, General provisions, or to vary depending on the type of account or may be specified as a consolidated figure in parentheses beside the accounts receivable (AR).
General provisions for companies
The company that writes and works with clients using AR can show the overall situation on balance bad debts or doubtful debts. The amount is uncertain because the default has not yet occurred but is estimated with a reasonable degree of accuracy based on the company’s history. For example, the company can analyze write-off for the previous reporting year, when establishing General provisions for doubtful debts in the current year. When you write off is used to clear a specific account, the amount transferred to bad debt expenses.
Companies that provide pension plans may allocate part of the company’s capital to meet future obligations. If recorded on the balance sheet General provisions for assessing future volumes of the liability can be registered only as footnotes on the balance sheet.
General provisions for financial institutions
Due to international standards, banks and other credit institutions must have sufficient capital to offset risks. The standard may be satisfied by reference to the balance sheet as reserve for doubtful debts or General provision. Reserve funds provide backup capital for risky loans that could default.
A special position is created for accounts receivable are faced with serious financial problems or trade dispute. Residues can be noted through the analysis of accounts receivable analysis aged detail the time elapsed since the creation of the document. Long-term debt may be included in the allowance for doubtful debts. However, a specific provision could be created for the whole amount of doubtful debts. For example, if there is a 50% chance of recovery of doubtful debts for accounts receivable of certain, specific provisions 50% may be required.
Changes in financial reporting standards
The act of creating General provisions decreases with changes in international financial reporting standards (IFRS). International financial reporting standards (IAS) 39 prohibits the creation of General provisions based on past experience, because of the subjectivity in creating the estimates. Reporting organizations are obliged to perform impairment to determine the collectability of receivables and the relevant provisions.