ELI5: accruals vs provision

Accruals are like remembering you owe someone money, while a provision is like setting aside money because you think you might owe someone later.

Think about it like this:

• Accruals: Imagine you hired your neighbor to mow your lawn last week, and they did a great job, but you haven't paid them yet. You know you owe them money. That's an accrual. It's a certain debt that happened, but you haven't paid yet.

• Provision: Now, imagine your dog sometimes digs holes in your neighbor's garden. You're worried they might ask you to pay for the damage, but they haven't said anything yet. You decide to put some money aside, just in case. This is a provision.

So, to recap:

• Accrual: You know you owe money for something that already happened. It’s a sure thing.
• Provision: You might owe money for something that might happen. It’s a maybe thing.