What are provisions in accounting?

A provision is accounting for a future expected loss.

Some examples of provisions are:

• Car companies will establish a warranty provision - on the basis that cars sold with a warranty may need to be fixed.
• If a company is being sued, and there is a reasonable expectation that they will lose the case, they may need to raise a provision.

The provisions merely book the loss in the current period (or the existence of the provision shows that the loss has been accounted for).  

It does not reflect whether or not any money has been set aside to pay out costs.

A provision for non-payment of an amount owed (called a provision for bad and doubtful debts) merely reduces the asset (debtor) and appears as a loss in the P&L account - this is booked in the period in which the debtor is expected not to pay.

When it becomes clear that they will definitely not pay, the amount is written off as a bad debt - note, it has already hit the P&L account when it was provided for, so writing off a bad debt that has already been provided for has no further impact on the P&L account.