Sr. Accountant
187 Points
Joined January 2012
A provision is the sum of amount set aside by charging against the profit and loss account. It is created
for meeting a known loss or liability. Provision is maintained for meeting an anticipated loss or liability of uncertain amount.
Objectives Of Provision
Some of the important objectives of maintaining provisions are as follows:
* To Meet Anticipated Losses And Liabilities
Provisions are created for meeting anticipated losses and liabilities such as provision for doubtful debts, provision for discount on debtors and provision for taxation.
* To Meet Known Losses And Liabilities
Provisions are created for meeting known losses and liabilities such as provision for repair and renewals.
* To Present Correct Financial Statements
In order to present correct financial statements and to report true profit and financial position, the business must maintain provision for known liabilities and losses.
Hence Provision is necessary.