Glossary
What is a provision?
What a provision means in accounts, how it differs from a reserve, and how a provision for doubtful debts is booked from an ageing report.
Updated
In short
A provision is an amount charged to profit now for a liability or loss that is likely but uncertain in amount. SimpleERP has no automatic provisions; post them with a manual journal to an account you add.
A provision is an amount charged to profit for a liability or loss that is likely but not yet certain in amount or timing, such as customer dues that may not be paid, warranty repairs, or income tax for the year. It follows prudence: expected losses are recognised now. A provision is reviewed each period and increased, used against actual losses, or released.
Provision: a worked example
On 30 September 2026 Lakshmi Steel Furnitures' receivables ageing shows ₹4,800 more than 90 days overdue. The accountant provides for all of it as doubtful.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 30 Sep 2026 | Bad and doubtful debts | ₹4,800 | |
| 30 Sep 2026 | Provision for doubtful debts | ₹4,800 |
FAQ
Questions, answered
What is the difference between a provision and a reserve?
A provision is a charge against profit for a specific expected loss or liability, such as doubtful debts. A reserve is an appropriation of profit already earned, set aside by choice, such as a general reserve. Provisions reduce profit; reserves come out of it.
Is a provision a liability?
Provisions for things like warranty or tax are liabilities. A provision for doubtful debts is shown as a deduction from trade receivables, because it reduces the amount the business expects to collect rather than creating something it owes.
What happens if the customer pays after I made a provision?
Record the payment against the invoice as usual, then reverse or reduce the provision at the next review. The release adds back to profit in that period, offsetting the earlier charge.
How is a provision different from a write-off?
A provision expects a loss and leaves the receivable on the books. A write-off accepts the loss and removes the receivable. Many businesses provide first and write off once recovery is clearly impossible.
Related
Keep reading
Write-off
Removing an asset's value from the books when it is lost, worthless or uncollectible, and charging it to profit.
Read moreAgeing report
Unpaid invoices or bills grouped by how long they are past due.
Read moreAccrued expense
A cost already incurred but not yet billed or paid at the end of a period, recorded as a liability.
Read more
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