designation between provision and reserve
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In the business glossary, provisionimplies money set aside to cover an anticipated liability or loss. ... So, the basic difference between provision and reserve is that net profit is calculated only after giving effect to allprovisions, whereas reserves are created only after reckoning profit.
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BASIS FOR COMPARISONPROVISIONRESERVEMeaningThe Provision means to provide for a future expected liability.Reserves means to retain a part of profit for future use.What is it?Charge against profitAppropriation of profitProvides ForKnown liabilities and anticipated lossesIncrease in capital employedPresence of profitNot necessaryProfit must be present for the creation of reserves, except for some special reserves.Appearance in Balance SheetIn case of assets it is shown as a deduction from the concerned asset while if it is a provision for liability, it is shown in the liabilities side.Shown on the liabilities side.CompulsionYes, as per GAAPOptional except for some reserves whose creation is obligatory.Payment of DividendDividend can never be paid out of provisions.Dividend can be paid out of reserves.Specific useProvisions can only be used, for which they are created.Reserves can be used otherwise.
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BASIS FOR COMPARISONPROVISIONRESERVEMeaningThe Provision means to provide for a future expected liability.Reserves means to retain a part of profit for future use.What is it?Charge against profitAppropriation of profitProvides ForKnown liabilities and anticipated lossesIncrease in capital employedPresence of profitNot necessaryProfit must be present for the creation of reserves, except for some special reserves.Appearance in Balance SheetIn case of assets it is shown as a deduction from the concerned asset while if it is a provision for liability, it is shown in the liabilities side.Shown on the liabilities side.CompulsionYes, as per GAAPOptional except for some reserves whose creation is obligatory.Payment of DividendDividend can never be paid out of provisions.Dividend can be paid out of reserves.Specific useProvisions can only be used, for which they are created.Reserves can be used otherwise.
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