Provision
A provision is an obligation whose existence is probable but whose amount or due date is not yet determined; it must be created when past events make an outflow of funds likely.
Definition
Typical cases are warranty obligations, pending litigation, remediation, and looming losses on contracts. Provisions for general risks or for future expenses with no cause in the past are not permitted — those would be hidden reserves.
For tax purposes provisions are recognised only to the extent they are commercially justified. What is no longer justified must be released — affecting the profit of the year of release.
The wording
Where past events lead to the expectation of an outflow of funds in future financial years, the provisions probably required must be created at the expense of the income statement.
Where to read it
What the software must be able to do
You need to be able to create, use and release a provision, with evidence per item. A collective account without a schedule leads, at the first audit, to questions nobody can answer any more.
Checked Aug 2026
More terms under Bookkeeping and retention: Accrual principle Accrued liabilities Annual accounts Association accounting Balance sheet Balance sheet total Book value Break-even point Business assets Business expenses Cash book Cash flow statement Cash receipts Contribution margin Cost centre Current assets Debit and credit Depreciation Double-entry bookkeeping Duty to keep accounts EBIT EBITDA Equity Equity ratio Financial year Fixed assets Fixed costs Foreign currency General ledger Gross profit Hidden reserves Income statement Inventory count Journal Journal entry Liabilities Liquidity Loss carry-forward Membership dues Net profit Opening balance sheet Overheads Pass-through item Prepaid expenses Record-keeping ordinance Reserves Retained profit Simple accounts Swiss SME chart of accounts Tamper resistance Turnover Value adjustment Variable costs Volunteer-run structure Voucher Year-end closing modules