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Can a company record a provision for future losses in the cu

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Company A has experienced a great year of sales growth and profitability. However, due to the economy downturn, the CEO forecasts that the company will incur operating losses in 2 of its major businesses next year. He proposed that the company record a provision for these future losses this year, since it can afford to take the charge and still show good results. You need to advise him on the appropriateness of this charge.

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Solution Summary

Your tutorial is 180 words and gives you the three words needed to be able to accrue an expense or loss that is not yet incurred.

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You can only record a loss when the event that triggers the loss has already occurred, the likelihood of the loss is probable and the amount of the loss is estimable. So, you are looking for three key words:

TRIGGER EVENT
PROBABLE
ESTIMABLE

In this case, we don't really need to get to the probable and ...

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