3 example revenue reserve and capital reserve
Answers
In business, all the profit earned during a financial year is not utilized for payment of dividend to the shareholder, rather a certain amount is earmarked and retained in the business, so as to meet out future needs or cope with emergency situations, it is known as reserves. Based on the nature of profit from which reserves are created, they are grouped as revenue reserve and capital reserve. Revenue Reserve is created out of profit arising from day to day business operations while Capital Reserve is created out of capital profits
Reserves are nothing but an appropriation of profit and thus it decreases the amount of profit available with the company for distribution to shareholders. It appears on the liabilities side of position statement (Balance Sheet) under the head Reserves and Surplus. In this article excerpt, you can find, substantial differences between revenue reserve and capital reserve.