What is provisions entry and why do the same entry on closing year?

Answer 1

At the end of accounting year, an enterprise is required to prepare financials (i.e. Cash Flow Statement, Profit and loss account and Balance Sheet).Provisions are to be made for certain liabilities like sales tax, Interest on loan etc. (Those which are ascertainable today, while closing a year) but need to pay in near future (next accounting year). These accounting expenses needs to be considered while making provisions and that's why provisions are made. Provisions are made at the time closing a particular year because expenses relating to coming (next) accounting year can't be booked as expense in current books. This is why provisions are made at end of every accounting year.