Meaning and Definition of Provisions

Provisions

Meaning

Provision is an amount which is set aside as a charge against earnings to meet a loss which may arise on the sale or realization of certain asset or diminution in the value of an asset or to meet heavy depreciation, repairs and renewals or to meet a known liability. Provisions are created for a specific known liability or contingency and they can be used to meet only the specific liability for which they are created.

Examples of Provisions: (1)  Provision for Depreciation, (2)  Provision for Taxation, (3)  Provision for Doubtful Debts, (4)  Provision for discount on Debtors, (5)  Provision for Repairs and Renewals.

Definition

Companies Act defines the term Provision as, “any amount written off or retained by way of providing for depreciation, renewal or diminution in the value of assets or retain by way of providing for any known liability of which the amount cannot be determined with substantial accuracy”.