Large expenses, with a one-time write-off, can dramatically increase the cost and cause losses to the company. In order for expenses to be included in costs evenly, reserves for future expenses are formed.
Definition
Reserves for future expenses, as a rule, are created by the organization for the future distribution of the reserved funds for future expenses of the enterprise. In the future, these funds can be evenly charged to the costs of production of the enterprise.
The creation of such reserves in the company is regulated by PBU. An enterprise may create reserves for the payment of future staff vacations, the payment of bonuses based on the results of the year or bonuses for long service, for the modernization of fixed assets. In addition, reserves can be created to cover future expenses for preparatory seasonal work, repairs of the main assets that the company rents, or land reclamation and other environmental measures. Separately, it is worth noting the reserves for warranty service.
Accounting for reserves
Information on the status and movement of the created reserves should be reflected on the passive account 96 “Reserves for future expenses” in the Chart of Accounts. Analytical accounting in the organization is carried out separately for each type of reserves. The accrual of reserve funds is reflected in the credit of account 96, while the debit accounts for the accounting of expenses for one or another production are reflected in the debit (accounts 20 to 29). In case of actual expenses and payments that are made at the expense of the reserve funds, account 96 is debited in correspondence with accounts reflecting the expenses being written off (account 08, 10, 23, 70 and others).
Account 96 “Reserves for future expenses” is synthetic. In the enterprise subaccounts can be opened to it. For example, subaccount 1 “Reserve for future vacations”, subaccount 2 “Reserve for warranty service”, subaccount 3 “Other reserves” and others. The company has the right to determine the list of sub-accounts and keep records of reserves for future expenses in accordance with its accounting policy.
Typical accounting entries
As mentioned earlier, the accrued reserves of future expenses and payments are reflected in the credit of account 96. For example, accrual of reserve amounts for future expenses on capital construction is debited to account 08 and credited from account 96. The accrual of the reserve for the payment of vacations or long-term service bonuses is credited from account 96 to accounts 20 (for workers of primary production), 23 (for workers auxiliary production), 25 and 26 (for general and managerial personnel).
The debit of account 96 deducts the previously created reserves from the credit of account 23 for the repair of auxiliary production facilities. The accrual of funds for vacation pay or a seniority bonus is deducted from bills 70 to the debit of account 96.
Balance sheet
Since 2011, reserves for future expenses are reflected in the balance sheet as the sum of long-term estimated liabilities. In the balance sheet in these lines the balance of the credit of account 96 is displayed. In the new form of the balance, reserves for short-term estimated liabilities are usually reflected in a separate line.
However, since 2011 not all reserves will be reflected in the balance sheet as estimated liabilities. For example, provisions for repairs of fixed assets should now be written off to other expenses. Therefore, the estimated obligations will be considered the costs of paying employees leave and cash bonuses for years of service, as well as the costs of warranty service.
Creation of reserves for vacation pay
The organization has the right to independently establish the terms and methods for evaluating its own obligations in accounting and fix them with the provisions of its accounting policy. The organization can create reserves based on the approved schedule of employee vacations.
Accrual of reserve funds can be carried out monthly or quarterly. The first option is preferable, since it is the most reliable and allows you to accrue a reserve for the payment of vacation pay as employees gain the right to vacation days.
There are two options for how you can determine the specific size of the provision for deductions. The first option is that the organization can calculate the amount of contributions to the reserve (RO), taking as a basis the size of the wage fund of employees of the organization (PAY) for a month or a quarter. In many organizations, it is customary to establish it in the amount of 2.33 days of vacation for each month of the employee's work.
Then the formula is as follows:
RO = (PHOT + Value of insurance premiums) / 28 days * 2.33 days.
The second option for determining the amount of cash deductions to the reserve involves calculating the amount for each employee separately. To do this, you need to know the employee’s daily earnings (SZ) and the number of vacation days that the employee can use (UP). Then the formula will look like this:
PO = SZ * BEFORE.
In this case, the total amount of reserve deductions is the sum of the amount of PR for each employee, increased by the size of insurance premiums. This method is more complex, but at the same time the most reliable and allows you to more accurately assess the amount of reserve deductions.
Creation of reserves for warranty service
An organization determines the value of its estimated liability on its own, based on experience in calculating similar obligations or expert opinions.
For short term warranty obligations (1 year or less) reserve is accrued in the total amount of liabilities. For long-term guarantee obligations (more than 1 year), the amount of the reserve is accrued at the discounted value, which is calculated by multiplying the amount of the liability that will need to be repaid by the discount coefficient.
Correct and reliable accounting of estimated liabilities, including reserves for future expenses, plays an important role for any organization, as it allows you to correctly detail expenses and manage them more efficiently.
