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Categories >> Accounting >> Accounting General


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Why Reserves and Surplus are shown on the liabilities side of 
the balance sheet.? justify your answer.
 Question Submitted By :: Accounting-General
I also faced this Question!!     Answer Posted By  
# 1
An important question why reserves and surplus are shown on
the assets side of the balance sheet. To answer this question
lets know about the principle of accounting "Convention of
conservatism" states that "anticipate no profits but for
provide all possible losses .Therefore reserves and surplus
are so created to meet the contingencies of the business .Here
contingencies are those obligations which may or may not to be
paid .However, in order to pose any future liability reserves
are created so that a business may not hamper on such events
and hence it the liability for the business.
Is This Answer Correct ?    21 Yes 6 No
# 2
reserves and surplus are shown into liability side of the
financial statiment, since reserve is the money set aside
from the capital for future use hence defining surplus as a
debit in the business thus attributing to its liabiltiness,
Is This Answer Correct ?    8 Yes 4 No
# 3
reserve and surplus are shown liabilities side because the
percentage of net profit portion is keep aside for further
losses due to whatever so that time this portion profit
which is used in losses.
Is This Answer Correct ?    2 Yes 0 No

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