Provision for Corporation Tax Journal Entry

A provision for corporation tax is an accounting entry made to recognize the liability of corporation tax that is expected to be paid for the current financial year. This provision ensures that the financial statements accurately reflect the tax expense for the period.

Scenario:

A company estimates its corporation tax for the financial year to be ₹100,000.

1. Recording the Provision for Corporation Tax

Date	Particulars	Debit (₹)	Credit (₹)
2024-03-31	Income Tax Expense A/c	100,000
	To Provision for Corporation Tax A/c		100,000
	(Being provision made for corporation tax)

Explanation:

1. Income Tax Expense A/c is debited to recognize the tax expense for the period.
2. Provision for Corporation Tax A/c is credited to set up the liability on the balance sheet.

Scenario:

When the actual tax payment is made, the provision is utilized.

2. Utilizing the Provision for Corporation Tax

Date	Particulars	Debit (₹)	Credit (₹)
2024-06-15	Provision for Corporation Tax A/c	100,000
	To Cash/Bank A/c		100,000
	(Being payment made for corporation tax)

Explanation:

1. Provision for Corporation Tax A/c is debited to reduce the liability.
2. Cash/Bank A/c is credited to reflect the outflow of cash for the tax payment.

Adjusting the Provision

If the estimated tax needs to be adjusted based on new information.

Increasing the Provision

Date	Particulars	Debit (₹)	Credit (₹)
2024-03-31	Income Tax Expense A/c	20,000
	To Provision for Corporation Tax A/c		20,000
	(Being additional provision made for corporation tax)

Decreasing the Provision

Date	Particulars	Debit (₹)	Credit (₹)
2024-03-31	Provision for Corporation Tax A/c	10,000
	To Income Tax Expense A/c		10,000
	(Being excess provision reversed)