Provision

Meaning

A provision (مخصص) is booked when a business has a present obligation from a past event, will probably have to pay, and can estimate the amount, even though the exact figure or date is not known. The entry debits an expense and credits the provision, a liability on the balance sheet, and the provision is released or used when the payment is made. The commonest in Saudi books is the end-of-service benefit provision, which grows every month an employee works.

Allowances against assets are provisions by another name: the allowance for doubtful debts reduces receivables, and the write-down of slow stock reduces inventory. They are not reserves set aside in cash, and they are not deductible for zakat until paid, which is one of the standing adjustments on the zakat return.

Also called: accounting provision · allowance · المخصص

Example

Al Noor's twelve employees have between them earned end-of-service benefits of 43,000.00 at year end under the Labour Law's half-month-per-year rule. The provision stands at that figure; when an accountant leaves after four years and is paid 20,000.00, the provision is debited and the bank credited.