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Definition
A provision is a liability of uncertain timing or amount, recognised when a past event makes an outflow probable and estimable — for example a doubtful-debt provision or a dilapidations provision.
In plain terms
It puts a realistic future cost into today’s accounts so profit is not overstated. It is the prudence concept made concrete.
Why it matters for your company
Sensible provisioning gives a truer profit and reassures lenders you are not hiding known problems. Over-provisioning, though, can needlessly depress reported profit. See impairment.
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