An amount set aside out of profits in the accounts of an organization for a known liability (even though the specific amount might not be known) or for the diminution in value of an asset. Common examples include provisions for bad debts, for depreciation, and for accruals. According to the UK Companies Act 1981 notes must be given to explain every material provision in the accounts of a limited company. Because of abuses in the use of provision, Financial Reporting Standard 12 was issued in September 1998, in which a provision was defined as a liability that is of uncertain timing or amount, to be settled by the transfer of economic benefits.
Subjects: Financial Institutions and Services.