ABSTRACT
This chapter discusses several types of provisions used by firms. Provisions frequently used are: for deferred tax liabilities; for environmental risks; for pension obligations; for assets; for maintenance; and for warranties. For the administration of these provisions, the following two methods are generally used: static method and dynamic method. A firm that sells goods on credit runs the risk that some of the receivables will be partially or fully uncollectable. The cost resulting from default can be recorded using one of the following methods: direct write off method; aging of accounts receivable method; and percentage of sales method. In order to show that every year a certain erosion of assets occurs that will be undone by major maintenance, it is possible to establish a provision for maintenance. The actual expenditures are then debited to the provision account.
