difference between provision and contingent liability

provision and contingent liability

provision- is counted for at present as a result of a past event.
contingent liability - is recorded at present to account for a possible future outflow of the fund.

what is provision  - a provision is a decrease in assets value and should be recognized when a present obligation arises due to past events when the obligation arises the amount often uncertain (commonly recorded as provision ), provision for bad debts (debts cannot be recovered due to insolvency of the debtor) where the organization makes an allowance for inability to collect fund from there debtors due to non-payment or insolvency of debtor provision is reviewed at the end of financial year to recognize the movement of last financial year's provision amount and the over-provision or under-provision will be charged on income statement, the usual provision is based on a company's policy. for example, the company make policy is allowance 10% of the debtor for bad and doubtful debts. in the case, if the total debtor amount is rupees 10000 the allowance will be 10% of the total debtor.