Provision For Credit Losses - PCL

What is the 'Provision For Credit Losses - PCL'

The provision for credit losses (PCL), in accounting, is an estimation of potential losses that a company might experience due to credit risk. The Provision for credit losses is an estimated amount to be lost and is treated as an expense on the company's financial statements. Companies that engage in lending activities determine the provision for credit losses based on statistics that define the likelihood that debt will be recovered.

BREAKING DOWN 'Provision For Credit Losses - PCL'

The provision for credit losses is a means for financial institutions to account for expected losses from delinquent and bad debt. Based on historical statistics, a financial institution can make estimates regarding the amount of loans or other credit that is likely to become default and unsatisfied (default probability). If, for example, the company calculates that accounts over 90 days past due have a recovery rate of 40%, they can make a provision for credit losses based on 40% of the balance of these accounts.

RELATED TERMS
  1. Allowance For Credit Losses

    An estimation of the debt that a company is unlikely to recover. ...
  2. General Provisions

    A balance sheet item representing funds set aside by a company ...
  3. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
  4. Credit Limit

    The amount of credit that a financial institution extends to ...
  5. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  6. Bad Credit

    A qualification of an individual's credit history that indicates ...
Related Articles
  1. Economics

    What is a Loan Loss Provision?

    Banks set aside loan loss provisions to cover losses from bad loans.
  2. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  3. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  4. Credit & Loans

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  5. Options & Futures

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.
  6. Credit & Loans

    5 Common Misconceptions About Your Credit Report

    Your credit report is one of the most important factors in determining your ability to get loans and new credit and has a major influence on your rates.
  7. Credit & Loans

    Use Your Credit Card To Boost Your Credit Score

    Misusing credit cards can blow your credit – but using them well can boost your score. How to grow a history, fix bad credit, make good credit even better.
  8. Credit & Loans

    Millennials: Prevent a Bad Credit Score

    Here are five ways to help prevent getting a bad credit score that could affect future loan, credit card or mortgage approvals.
  9. Home & Auto

    Revolving Credit vs. Line of Credit

    Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.
  10. Credit & Loans

    Use Your Credit Card to Improve Your Credit Score

    Responsible credit card use can provide a convenient boost to your credit score.
RELATED FAQS
  1. What's the difference between accrued expenses and provisions?

    Read about the differences between accrued expenses and provisions, and why a company might record one over the other in ... Read Answer >>
  2. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
  3. What is the difference between bad credit and no credit?

    The answer to this question will depend on what information (if any) is found on your credit report, such as any bankruptcy ... Read Answer >>
  4. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  5. What are some reasons banks deny applications for checking accounts?

    Understand what a revolving credit account is and what a general line of credit is, and learn the differences between the ... Read Answer >>
  6. What are some good alternatives to taking out a line of credit?

    Read more about how opening a line of credit might not be the best answer for you and determine available alternatives if ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center