Provision is created for____________?
Correct answer: B. Known Liabilities
- A. Unknown Liabilities
- B. Known Liabilities
- C. Creation of Secret Reserves
- D. All the Three
Explanation
A provision is made for a known liability or loss whose exact amount or timing may be uncertain. Unknown liabilities are not provided for merely because they might arise, so B is correct.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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