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What is the difference between reserve and provision?

Open uri20170510 32134 ughyv5?1494421703 gunesh asked over 2 years ago

Hi, Explain about the differences between reserve and provision?

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6 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered about 2 years ago

The main reason for creating a reserve is to be able to meet any unknown losses that may occur in the future. In contrast, the main reason for creating a provision is to provide for losses that have been known and are expected. Another difference between the two is that a reserve can only be created if the company is profitable. However, provisions are made regardless of whether the company is making a profit or loss.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered over 2 years ago

As far as your query is concerned with what is difference between reserve and provision. Let as informed that the main difference is Reserve is a appropriation of profit while provision is charge against profit

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Open uri20170510 32134 1c996lj?1494421732 Anil answered over 2 years ago

Hello Provisions and reserves are both important components in accounting. While provisions are generally seen to be negative since they reduce income levels, reserves are seen to be positive and result in higher profits. The main reason for creating a reserve is to be able to meet any unknown losses that may occur in the future. In contrast, the main reason for creating a provision is to provide for losses that have been known and are expected. Another difference between the two is that a reserve can only be created if the company is profitable. However, provisions are made regardless of whether the company is making a profit or loss

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Open uri20170510 32134 1uwcnoc?1494421631 Shubhangi Jain answered over 2 years ago

Provisions and reserves are both important components in accounting. While provisions are generally seen to be negative since they reduce income levels, reserves are seen to be positive and result in higher profits. The main reason for creating a reserve is to be able to meet any unknown losses that may occur in the future. In contrast, the main reason for creating a provision is to provide for losses that have been known and are expected. Another difference between the two is that a reserve can only be created if the company is profitable. However, provisions are made regardless of whether the company is making a profit or loss.

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Picsjoin 2017224123730582 Archana answered over 2 years ago

Hie Gunesh, - A reserve is an appropriation of profits for a specific purpose. The most common reserve is a capital reserve, where funds are set aside to purchase fixed assets. By setting aside a reserve, the board of directors is segregating funds from the general operating usage of a company. - There is no actual need for a reserve, since there are rarely any legal restrictions on the use of funds that have been "reserved." Instead, management simply makes note of its future cash needs, and budgets for them appropriately. Thus, a reserve may be referred to in the financial statements, but not even be recorded within a separate account in the accounting system. - A provision is the amount of an expense or reduction in the value of an asset that an entity elects to recognize now in its accounting system, before it has precise information about the exact amount of the expense or asset reduction. For example, an entity routinely records provisions for bad debts, sales allowances, and inventory obsolescence. Less common provisions are for severance payments, asset impairments, and reorganization costs. - In short, a reserve is an appropriation of profit for a specific purpose, while a provision is a charge for an estimated expense.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Amit Goyal answered over 2 years ago

Dear dinesh ji, As far as your query is concerned with what is difference between reserve and provision. Let as informed that the main difference is Reserve is a appropriation of profit while provision is charge against profit Reserve is made after calculation of net profit while provision is made before calculation of net profit Thanks With best regards Amit goyal

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