Very simply put, provision is an amount of profit which is put aside on the books to cover an expected / potential expense in the foreseeable future. In day-to-day accounting, there is a high chance that expenses already incurred in the given period may not be booked. The reasons for this could vary e.g. the vendor is yet to raise an invoice, or let’s say that the invoice is raised once in 6 months only and at the year end we have already availed services of 3 months. A provision should be created in the books for these expenses which have already been availed by us. Expenses incurred in a given financial year should be booked in the same year to maintain the true and fair view of the financial statements. But if can’t book expenses for any reason, then provision is the next best thing to do.