Provision

A liability of uncertain amount is called provision.

In financial accounting, a provision is an account that records a present liability of an entity to another entity. The recording of the liability affects each the current liability side of an entity's balance sheet as well as an appropriate expense account in the entity's income statement.

Under the International financial reporting Standards (IFRS) a provision is a liability, while under united states Generally Accepted Accounting Principles (GAAP) it's an expense. Thus, within the u.s., a liability for income tax is represented as revenue enhancement Expense, while under IFRS it's represented as income tax due . Similarly, warranty costs are treated as an expense under GAAP and a liability under IFRS.

Sometimes in IFRS, however not in GAAP, the term reserve is used instead of provision. Such a use is, however, inconsistent with the terminology suggested by International Accounting Standards Board.