Why Reserves and Surplus are shown on the liabilities side of
the balance sheet.? justify your answer.
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Answer Posted / zam
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 ? | 48 Yes | 26 No |
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