Question

Provision __ of the year in which it is created:

• A. Increases the profit
• B. Decreases the profit
• C. Does not effect the profit
• D. May increase or decrease the profit

Answer 1

Answer:

B. Decreases the profit

Provision is treated as an expense or charge against profit in the year it is created. Examples: Provision for doubtful debts reduces net profit because it anticipates possible future losses. Provision for taxation similarly reduces profit for the accounting period. It ensures that the financial statements reflect a true and fair view of profits after accounting for expected liabilities.