What is provision?

There are certain expenses/loses which are related to the current accounting period but amount of which is not known with certainty because they are not yet incurred. It is necessary to make provision for such items for ascertaining true net profit. (An amount set aside, usually out of retained profit, for a specific purpose or for some future intended action.)

OR

(A present liability with uncertain timing and amount, which will, arising from a past event, occur with high probability (greater than 50%), and will require a financial expenditure that can be reliably estimated (as specified by IAS 37 – International accounting standard).