Difference between Provision and Reserve

Provision and reserves both are created for covering future losses. If we do not make, we can face lots of losses and it will be impossible for us to survive by tolerating such losses. So, as a good person, we need to create provisions and reserves. But both are different terms. You can not use one term for other all the times. Know its main differences for proper use of both accounting terms.


1. Meaning 

Provision : Provision is created to show certain liability. For example, from past experience, we have know there will be 10% bad debts out of total debtor asset. So, out of total revenue, we deduct provision for doubtful debt as show it as current liability.

Reserve : Reserve is created to show unknown liability. For example, we are doing business in share market. It is risky business. So, we have created Risk for fluctuation in share market as $ 20,000. In past experience, there was no loss but still we are showing it as liability and deducting from our total revenue.


2. As per Law 


Provision : As per law, to create provision is necessary. That is reason, we show it as expense side in profit and loss account.

Reserve : As per law, to create reserve is not necessary. That is the reason, we deduct it out of net profit by making profit and loss appropriation account.


3. Aim of Creation


Provision : Main aim is to create provision to cover loss due depreciation and bad debts. So, we can buy new fixed asset and invest more money in debtors.

Reserve : Main aim of reserve is to provide financial strength to the business.


4. Accounting Treatment


Provision : We debit the profit and loss account and credit the provision account.

Reserve : We debit the profit and loss appropriation account and credit reserve account.


5. Investment

Provision : Fund created with provision can not be invested outside the business

Reserve :  Fund created with reserve can be invested outside the business.


6. Showing in Balance Sheet

Provision :  It is shown in balance sheet by deducting specific asset.

Reserve :  It is shown in the liability side of balance sheet under reserve and surplus heading.



7. Use of Dividend


Provision :  It can not be used for giving dividend to shareholder.

Reserve :  It can be used for giving dividend to shareholder.


8. Other Usage

 Provision :   It is created for covering specific loss, so use for same purpose. For example, provision for depreciation fund can only be used for buying new fixed asset.

Reserve : Reserve can be used by any other purpose.


Related Resource : Difference between Similar Terms

COMMENTS

Comments on this Website: 1
Loading...
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: Difference between Provision and Reserve
Difference between Provision and Reserve
Accounting Education
http://www.svtuition.org/2014/11/difference-between-provision-and-reserve.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2014/11/difference-between-provision-and-reserve.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock