Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
Answers
Explanation:
The primary difference between revenue reserve and capital reserve is that revenue reserve is the reserve which is created out of the profits of the company generated from its operating activities during a period of time whereas the capital reserve is the reserve which is created out of the profits of the company generated from its non-operating activities during a period of time.
Reserves are one of the most notable appropriations of profits. Companies create reserves so they can be ready to face any contingencies in the near future. Reserves in a company can be divided into two broad categories – one is the capital reserve and another is revenue reserve.
Revenue reserve is created from the net profit companies make out of their own operations. Companies create revenue reserve to quickly expand the business. And revenue reserve also helps the companies to source their capital from their own internal profits. As an example, we can talk about retained earnings.