Provision
Definition
A liability of uncertain timing or amount recognised when a business has a present obligation that will probably require settlement, such as warranty costs or expected bad debts. It is estimated and reviewed each period.
Related Terms in Core Accounting
Reserve
An appropriation of retained earnings set aside within equity for a purpose such as future expansion or to strengthen the balance sheet. Unlike a provision, a reserve is part of equity, not a liability.
Capital vs Revenue Expenditure
Capital expenditure buys or improves long-lived assets and is capitalised and depreciated; revenue expenditure covers day-to-day running costs and is expensed in the period. The split affects both profit and the balance sheet.
Intangible Asset
A non-physical asset with value, such as patents, trademarks, software and goodwill. Those with a finite life are amortised over that life, while indefinite-life intangibles are tested for impairment.
Impairment
A reduction in an asset's carrying amount when its recoverable value falls below what the books show. The write-down is recognised as a loss, keeping assets from being overstated.
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