Reserve is the part of the capital of a company, other than 
the share capital, largely arising from retained profit or 
from the issue of share capital at more than its nominal 
value. Reserves are distinguished from Provision in that 
for the latter there is a known diminution in value of an 
asset or a known liability, whereas reserves are surpluses 
not yet distributed and, in some cases (e.g., share premium 
account or capital redemption reserve), not distributable. 
The directors of a company may choose to earmark part of 
these funds for a special purpose.(e.g., a Reserve for 
obsolescence of plant). However, reserves should not be 
seen as specific sums of money put aside for special 
purposes as they are represented by the general net assets 
of the company. Reserves are subdivided into Retained 
earnings(revenue reserves), which are available to be 
distributed to the shareholders by way of dividends, and 
capital reserves, which for various reasons are not 
distributable as dividends, although they may be converted 
into permanent share capital by way of a bonus issue.

Provision is an amount set aside out of profits in the 
accounts of an organisation for a known liability(even 
though the specific amount might not be known) or for the 
diminution in value of an asset. Common examples include 
Provision for Bad debts, Provision for depreciation and 
also provision for accrued liabilities.

Reserve and Provision may be shown on the Liabilities side 
of the Balance sheet or it may be deducted from the 
concerned asset on the assets side of the balance sheet
(like Provision for bad debts deducted from Debtors)

for unseen circumstances, aliability

reserve is the part of the capital of the company
provision is an amount set aside out of profits

reserves are made out of profits( can be made only when 
firm is in profits)
and provisions are charged to P and l account

Provision is kept for those losses and liabilities which 
are certain, but the excat amount can not be accertained. 
e.g Provision for bad debts.

Reserve is kept for those items which are not certain.

(1)	Provision is made to meet known liability the 
amount of which cannot be ascertained with substantial 
accuracy.	
        Reserve is created to meet unexpected losses and 
contingencies likely to arise in future.
(2)	Provision can be used only for meeting the specific 
purpose for which it has been made.	
        Reserve can be used for any purpose unless it is 
created for a specific purpose.
(3)	Provision is a charge on profits and reduces the 
amount of net profits.	
        Reserves is an appropriation of profits and 
reflects undistributed profits.
(4)	Provision is to be made even if there are no 
profits.	
        Reserve is created only when there are profits.
(5)	Provision creation is compulsory.	
        Reserves creation is at the discretion of 
management with the exception of debenture redemption 
reserve for which the Companies Act has made a provison in 
certain cases.
(6)	Provision is meant for meeting expected losses and 
cannot be used for dividend distribution.	
        Reserves is a part of owner’s funds and can be used 
for distribution of dividends.