General Provisions
What are General Provisions?
A balance sheet item representing funds set aside by a company to pay for losses that are anticipated to occur in the future. The actual losses for the earmarked funds have not yet occured, but the general provisions account is counted as an asset on the balance sheet. For banks, a general provision is conceive to be supplementary capital under the first Basel Accord. General provisions are conceive to be a higher risk asset, because it is assumed that the underlying funds will be in default in the future.
General provisions are found most often on the balance sheets of financial firms. For example, a bank would set aside funds in the case of a set of doubtful loans.
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