Trade payables and provisions appear on the SFP. Explain an important difference

Question

Trade payables and provisions appear on the SFP. Explain an important difference between the amounts derived under trade payables and the amounts derived under provisions.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In millions of Korean won, in thousands of US dollars (Note 2.28) December 31, 2015 KRW December 31, December 31, December 31, Notes 2015 USD KRW Liabilities and Equity Current liabilities Trade payables Short-term borrowings 6,485,039 12,746,789 11,525,910 1,358,878 685,028 12,527,300 2,837,353 1,232,817 4,597,417 6,187,291 11,155,425 8,864,378 1,343,432 992,733 11,628,739 3,401,625 221,548 6,420,603 287,135 5,591,350 10,990,183 9,937,550 1,171,614 590,626 10,800,941 2,446,344 1,062,925 3,963,857 302,781 307,275 47,165,446 5,334,634 9,618,121 7,642,798 1,158,297 855,927 10,026,208 2,932,855 191,017 5,535,794 247,565 Advances received Withholdings Accrued expenses Income tax payable Current portion of long-term 6, 15, 16, 31 liabilities Provisions Other current liabilities Liabilities held-for-sale Total current liabilities 356,388 54,704,0945 50,502,909 43,543,216 Non-current liabilities Debentures Long-term borrowings Long-term other payables Net defined benefit liabilities Deferred income tax liabilities Provisions Other non-current liabilities Total liabilities 58,542 1,244,238 3,317,054 173,656 7,293,514 358,126 2,062,066 69,211,291 1,230,448 266,542 3,041,687 358,820 5,154,792 522,378 2,042,140 63,119,716 50,474 1,072,772 2,859,938 149,725 6,288,411 308,773 1,777,899 59,673,438 1,060,883 229,810 2,622,519 309,372 4,444,422 450,390 1,760,717 54,421,329 17

Explanation / Answer

Trade payable is the amount due to a supplier for goods or services received and billed by the suppliers on terms.

It is same as account payable.

Provisions are accrued expenses incurred but not paid and bills are not yet received.

An important difference between trade payable and provision is the certainty of amount and timing of payments. Trade payable are for purchases on credit with payment terms as per bills.

Provisions are generally for other expenses(other than purchase of materials for sale or manufacturing)

Provisions are made when the actual amount is not known because the expenses are not yet billed but incurred.

For example, bills for electricity, telephone and other utilities are generally received after the month is closed. At rhe time of closing the accounts for the quarter or year, the bills for actual expenses may not be available. The expenses are estimated and provisions made to match the expenses with the revenues of the period.

Other kind of provisions can be for bad debts based on historical data.

Provisions are estimates and trade payables are actual amount of expenses.

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