differentiate between reserve abd provision on the basis of charge against the profit
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reserve provovision of profit again of thdr acb ghbdyjjb the njgvnkgb
Difference between Provision and Reserve
Basis of Difference Provision Reserve
Basic Nature Charge against profit Appropriation of profit.
Purpose It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. It is made for strengthening the financial position of the business. Some reserves are also mandatory under law.
Effect on taxable profits It reduces taxable profits. It has no effect on taxable profit.
Presentation in financial statements It is shown in the liabilities side along with current liabilities. As it is a liability against some specified thing. It is shown in balance sheet liabilities side after capital amount.
Uses It can be used for specified purpose and cannot used for dividend distribution. It can be used for dividend distribution.