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CBSE Class 11-commerce Answered

Define provision. State its importance.
Asked by Topperlearning User | 08 Aug, 2016, 01:00: PM
answered-by-expert Expert Answer

Provision is an amount which is set aside by charging it to profit for the purpose of providing for any known liability or uncertain loss or expense. The amount of which cannot be determined with certainty is also referred to as provision.

Importance of Provision:

  1. To meet anticipated losses and liabilities: Provision is created to meet the anticipated losses and liabilities such as provision for doubtful debts, provision for discount on debtors and provision for taxation.
  2. To meet known losses and liabilities: Provision is created to meet known losses and liabilities such as provision for repairs and renewals.
  3. To present correct financial statements: To present a true and fair view of profit and financial statement, the business must maintain provision for known liabilities and losses.
Answered by | 08 Aug, 2016, 03:00: PM
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