Question

Answer in one Sentence only

What is meant by Provisions?

Answer 1

Provisions are made to meet a known liability. The amount that is kept aside from the profits of an enterprise to meet future ‘known’ liabilities is known as a provision. It is created only for those liabilities, the amount of which cannot be ascertained precisely and accurately beforehand. For example: Provision for Bad debts. It is certain that some debts will be irrecoverable but the exact amount of bad debts cannot be predicted with certainty. Hence, the amount set aside for the Bad debts is known as the Provision for Bad debts.