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Difference between provision and reserve

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Difference between provision and reserve

Posted by Sintu Singh 4 years, 6 months ago

CBSE > Class 11 > Accountancy

1 answers

Sia ? 4 years, 6 months ago

Reserve	Provision
The portion of profit kept aside for unforeseen obligations of a business	A portion of money from the business set aside for meeting known liabilities or expenses
Created by debiting Profit and Loss appropriation account	Created by debiting Profit and Loss Account
It provides capital for running the business and safeguards against expenses from unforeseen contingencies	It secures business from expenses arising from known liabilities
Presence of profit is required for allocation of reserve.	Presence of profit not necessary for allocation
Paid from reserves	Cannot be paid
Reduces net profit of the organisation	Reduces profits for dividend distribution
Always shown on the liability side	Appears as a deduction from the concerned asset, in case of an asset, in case of liabilities, it is shown in the liabilities side
Can be used for any given purpose	Needs to be used for the specific purpose it is allocated for

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