GlossaryAccounting & Bookkeeping
Provision
Also called: provisioning
What is Provision?
A provision is an amount set aside for a liability that is probable but not yet certain in amount or timing — doubtful debts, warranty claims, gratuity, or a disputed demand.
Why Provision matters
Providing early keeps the books honest about what is coming. It also stops one bad quarter from absorbing a loss that actually accumulated over years.
How Provision works in practice
Base provisions on evidence — an ageing analysis for doubtful debts, an actuarial estimate for gratuity — and review them each period, releasing what is no longer needed.
Frequently asked questions
No. A provision is for a known likely obligation; a reserve is an appropriation of profit.