Provisions
In one sentenceLiabilities that are uncertain in timing or amount, recognized at the best available estimate, such as the end-of-service benefit provision and the Zakat provision.
Simply put
A provision is a liability you know will occur, but you don't know exactly when or exactly how much, so you record the best estimate of it today instead of being surprised by it later.
It is recorded as an expense in the income statement and a liability in the statement of financial position, and it is reviewed at the end of each period and adjusted for new developments.
Worked example
An office has an employee with a salary of 6,000 SAR who has served 4 years, and it calculates his end-of-service benefit provision at half a month for each of the first five years.
Half the monthly salary6,000 ÷ 2 = 3,000 SAR
Years of service4 years
End-of-service benefit provision (3,000 × 4)12,000 SAR
Don't confuse it with
ReservePart of the profits retained within equity, while a provision is a liability charged against profits before arriving at them.