Provision - simple meaning ?
Pjdav
Registered Posts: 27
The meaning the book has given me - a provision is a liability of uncertain time or amount. Can someone break this down for me ??
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Comments
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"A provision is a liability of uncertain time or amount" - I don't think it gets any simpler than this I'm afraid, I will try to break it down as much as possible
For example:
Provision for doubtful debts:
Accounts Receivable account, Receivable, meaning that it hasn't been collected yet (the money/cash). There is a chance that a customer will not be able to pay for the goods/services bought. Therefore it is likely that it will become a Bad Debt; this is an expense. A prudent company would make a provision to estimate the amount of Bad Debt it is likely to receive for a period. This Provision is a Liability and wouldn't be classed as an expense (Bad debt is the double entry, as stated above) as you are covering potential future Liabilities.
Hope this helps.0 -
An amount set aside out of profits in the accounts of a company for a known liability.0
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