A liability whose timing and/ or amount are uncertain (whether arising from a legal or constructive obligation). It is an amount put aside in an entity’s accounts to cover a liability that may arise in the future. Setting up a provision involves a large degree of estimation and judgment given the fact that the amount, timing, and in many cases the parties in question are not known with certainty. Differently stated, a provision is an account which records a present obligation of a business (an entity) (in the statement of financial position or balance sheet) as a result of past events or transactions.

Examples of provisions include provision for customer claims, provision for product warranty, provision for bad debts, and provision for income tax, among many others.