Fundamental Glossary / Earnings & Accounting Concepts
Provisioning
Recording an estimated loss or expense before the exact amount is known.
Formula
Dr expense, Cr provision. Common for doubtful receivables, warranties, taxes in dispute, and loan losses.
What it means
A provision matches a likely cost to the period that caused it. A bank provisions for credit losses. A manufacturer provisions for warranty claims. A company provisions for a tax demand it expects to lose.
Provisions are estimates. Management can over-provide in a good year and release the excess in a bad year, which smooths profit.
How to read it
A sudden fall in provisioning that lifts profit, while the underlying book of receivables or loans has not improved, is a release of past conservatism, not new earning power.
What to watch
Under-provisioning stores up a future hit. The ageing of receivables and the coverage of non-performing loans are the checks in the businesses where this matters most.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.