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  • Provision refers to an amount set aside from the Profit and Loss account to cover losses which are likely to occur in future. Provisions are usually created for bad and doubtful debts, discount to debtors, depreciation, etc.

The following journal entry is passed:





Debit (₹)

Credit (₹)


Profit and loss A/c           Dr.




   To Provision for.... A/c

Impact on financial statements

  • In Profit and Loss account, provision is shown as an expense
  • In Balance Sheet, it will be reduced from the value of the respective asset. For example if it is provision for bad debts then it will be deducted from the debtors. On the other hand provisions can appear on the liability side of the Balance Sheet

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