Provision
Provision liability reduces an asset’s value because of a present obligation arising out of a past event
The event which can result in a provisional liability may or may not occur.
The estimated amount of the provisional liability is not certain
Any increase or decrease in provision liability gets recorded in the Profit and Loss Account
Contingent Liability
Contingent liability is a potential liability that can occur at a future date due to events beyond a company’s control
The event which can result in a contingent liability will occur.
The estimated amount of the contingent liability is largely certain
The Profit and Loss Account does not record a contingent liability
JE for Provision:
Expense A/c…. Dr
To Provision A/c…. Cr
JE for Contingent Liability: NA. It is an off Balance Sheet Item
