DEBT PROVISION Meaning and
Definition
-
Debt provision refers to a financial practice in which a company sets aside funds or creates reserves to cover potential losses or defaults on loans or other forms of debt. It is a precautionary measure taken to protect the company's financial health and ensure that it can meet its financial obligations.
When a company lends money or extends credit to customers or other entities, there is always a risk that some portion of that debt will go unpaid. Debt provision helps to mitigate this risk by allocating a certain amount of money from the company's earnings or capital to a reserve account. This reserve acts as a buffer against potential losses associated with bad debts.
The purpose of debt provision is twofold. Firstly, it helps to accurately reflect the financial position of a company by accounting for potential losses. By setting aside funds for debt provision, a company can provide a more realistic representation of its assets and liabilities on its balance sheet. Secondly, it ensures that the company has the necessary resources to absorb potential losses, thereby protecting its financial stability.
Debt provision is a common practice in various industries, including banking, lending institutions, and other sectors where credit is provided. The amount of debt provision required depends on factors such as the likelihood of defaults, the quality of the loan portfolio, and the current economic conditions.
Overall, debt provision is an important financial tool that helps companies manage and mitigate the risks associated with lending and credit, ensuring their financial stability and accurate representation of their financial position.
Common Misspellings for DEBT PROVISION
- sebt provision
- xebt provision
- cebt provision
- febt provision
- rebt provision
- eebt provision
- dwbt provision
- dsbt provision
- ddbt provision
- drbt provision
- d4bt provision
- d3bt provision
- devt provision
- dent provision
- deht provision
- degt provision
- debr provision
- debf provision
- debg provision
- deby provision
Etymology of DEBT PROVISION
The word "debt provision" does not have an etymology of its own because it is a combination of two separate words and their respective etymologies.
1. Debt:
The word "debt" originated from the Old French word "dete" or "deit" which meant "obligation" or "duty". It further traces back to the Latin word "debitum" which translates to "that which is owed" or "a debt". The Latin root "debitum" comes from the verb "debere" meaning "to owe".
2. Provision:
The word "provision" can be traced back to the Latin word "provisio" which meant "foreseeing" or "preparation". The root of "provisio" is "providere", which combines "pro-" (meaning "before" or "in advance") and "videre" (meaning "to see").
