Question

___________ is a charge against profit.

• A. Liability
• B. creditors
• C. Provision
• D. Reserve

Answer 1

The correct option is C Provision

The amount of provision for expense and loss is a charge against the profit of the current period. Creation of provision ensures proper matching of revenue and expenses and hence the calculation of true profits. Provisions are created by debiting the profit and loss account.
Unlike provisions, reserves are the appropriations of profit to strengthen the financial position of the business. Reserve is not a charge against profit as it is not meant to cover any known liability or expected loss in future.