Provision for professional expenses

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2012 the bill for the internal audit expenses for the period from january-12 to march-12 was issued on 20/06/2012. the provision related to such expenses was not made as on 31st march2012. whether the amount of expenses to be dr. under prior period expenses as on 20/06/2012???

Guest

Guest (Expert)

11 September 2012 Yes it is error so it will be charged as prior period expense.

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2012 I have another doubt regarding such querry- when the TDS on such professional fees has to get deducted??
in the above case TDS deducted at the time of passing journal entry i.e. at the time of receipt of bill i.e. on 20/06/2012....so is it late deduction of TDS??/

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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10 August 2024 ### Provision for Professional Expenses and TDS Implications

#### **1. Accounting for Professional Expenses:**

**Scenario:**
- **Period Covered:** January 2012 to March 2012
- **Bill Date:** June 20, 2012
- **Provision Status:** Not made as of March 31, 2012

**Treatment in Accounts:**

- **Provision Not Made:** If you did not make a provision for the internal audit expenses for the period ending March 31, 2012, the expense should be recorded in the accounts of the financial year to which it pertains, i.e., FY 2011-12. Since the expense relates to a prior period, it should ideally be disclosed as a "Prior Period Expense" in the financial statements of FY 2011-12.

- **Journal Entry:** The journal entry on June 20, 2012, when you receive the bill should be as follows:

```
Dr. Professional Expenses (P&L Account) [Expense Amount]
Cr. Accounts Payable / Cash / Bank [Expense Amount]
```

**Prior Period Expense Treatment:**
If the provision was not made previously, the correct approach is to record the amount as a prior period expense in the financial statements for FY 2011-12. The entry might look like:

```
Dr. Prior Period Expense [Expense Amount]
Cr. Accounts Payable [Expense Amount]
```

This ensures that the expense is allocated to the correct accounting period.

#### **2. TDS Deduction:**

**When to Deduct TDS:**

- **TDS on Professional Fees:** TDS on professional fees should be deducted at the time of crediting the amount to the payee's account or at the time of payment, whichever is earlier.

- **In Your Case:**
- **Bill Date (June 20, 2012):** TDS should be deducted at the time of crediting or payment. If the provision was not made previously, and you are making the provision or payment on June 20, 2012, the TDS should be deducted on June 20, 2012.

- **Late Deduction Issue:** If TDS is deducted only when the bill is received and not on the original due date or provision date, it is considered a late deduction. Ideally, TDS should have been deducted when the expense was accrued or at the time of payment.

**Implications of Late TDS Deduction:**

- **Interest and Penalty:** Late deduction of TDS can attract interest and penalties as per the Income Tax Act. It's important to rectify the delay by paying the TDS with applicable interest.

**Journal Entry for TDS:**

When TDS is deducted, the journal entry would be:

```
Dr. Professional Expenses [Expense Amount]
Dr. TDS Receivable [TDS Amount]
Cr. Accounts Payable / Cash / Bank [Expense Amount - TDS Amount]
```

### **Summary:**

- **Provision for Professional Expenses:** Should be made in the financial year to which the expenses pertain. Since the bill pertains to FY 2011-12, record it as a prior period expense in FY 2011-12 if not provisioned earlier.

- **TDS Deduction:** TDS should be deducted at the time of crediting or payment. Deducting TDS late can attract interest and penalties. Ensure TDS is paid along with interest if there was a delay.

For precise handling and compliance, especially in case of late TDS deductions, consulting with a tax professional or accountant is recommended.