PROVISION FOR CREDIT LOSSES Definition

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PROVISION FOR CREDIT LOSSES, in lending institutions, is a charge to income which represents an expense deemed adequate by management given the composition of a bank's credit portfolios, their probability of default, the economic environment and the allowance for credit losses already established. Specific provisions are established to reduce the book value of specific assets (primarily loans) to establish the amount expected to be recovered on the loans. See also PROVISION.

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SHORT TERM ASSET is an asset expected to be converted into cash within the normal operating cycle (usually one year), e.g. accounts receivable and inventory.

UNRESOLVED EQUITY is the difference between Total Assets and Total Liabilities on the Balance Sheet. Total Assets is always equal to Total Liabilities plus Equity.

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