Provision
A Provision is a legal or financial arrangement that sets aside resources or creates terms to handle future events, contingencies, or obligations.
- Context:
- Example(s):
- a Contract Provision,
- a Financial Provision,
- a Reserve Fund,
- a Contingency Clause.
- ...
- Counter-Example(s):
- See: Obligation, Contractual Term, Contract Clause, Liability Management, Financial Planning.
References
2023
- (GM-RKB ChatGPT, 2023) ⇒ Summarize the concept Provision in 1- 2 paragraphs, promt.GM-RKB ChatGPT (model: gpt-4-1106-preview) Retrieved: 2023-12-24.
- QUOTE: In accounting and finance, a provision is an amount set aside in the accounts of an organization to cover a future liability or decrease in the value of an asset. This is essentially a financial recognition of a probable expense that the organization expects to incur as a result of past events. The creation of a provision is a precautionary measure which ensures that the financial statements provide a true and fair view of the entity's financial position. Provisions are estimated amounts and may not represent the exact actual expense to be incurred, but they must be based on reasonable judgment and information available.
For example, a company might create a provision for bad debts if they expect that some customers may fail to pay their invoices in the future. Similarly, provisions can be made for warranties, legal disputes, decommissioning costs (especially in industries like oil and gas), restructuring costs, or pension obligations. Accountants will charge these provisions as an expense on the income statement, which reduces the company's net income, and establish a corresponding liability on the balance sheet. Creating provisions aligns with the prudence concept, where businesses recognize expenses and liabilities as soon as possible, even when the exact value or timing may be uncertain.
- QUOTE: In accounting and finance, a provision is an amount set aside in the accounts of an organization to cover a future liability or decrease in the value of an asset. This is essentially a financial recognition of a probable expense that the organization expects to incur as a result of past events. The creation of a provision is a precautionary measure which ensures that the financial statements provide a true and fair view of the entity's financial position. Provisions are estimated amounts and may not represent the exact actual expense to be incurred, but they must be based on reasonable judgment and information available.
2016a
- (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/Provision_(accounting)
- In financial accounting, a provision is an account which records a present liability of an entity. The recording of the liability in the entity's balance sheet is matched to an appropriate expense account in the entity's income statement.
Sometimes in IFRS, but not in GAAP, the term reserve is used instead of provision. Such a use is, however, inconsistent with the terminology suggested by International Accounting Standards Board. The term "reserve" can be a confusing accounting term. In accounting, a reserve is always an account with a credit balance in the entity's Equity on the Balance Sheet, while to non-professionals it has the connotation of a pool of cash set aside to meet a future liability (a debit balance).
- In financial accounting, a provision is an account which records a present liability of an entity. The recording of the liability in the entity's balance sheet is matched to an appropriate expense account in the entity's income statement.
2016b
- (Investopedia, 2016) ⇒ http://www.investopedia.com/terms/p/provision.asp
- QUOTE: A provision is a legal clause or condition contained within a contract that requires one or both parties to perform a particular requirement by some specified time or prevents one or both parties from performing a particular requirement by some specified time. For example, the anti-greenmail provision contained within some companies' charters protects shareholders from the board wanting to pass stock buybacks.