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what is the distinction between provisions and reserves
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Answer Posted / bindu
Provision is created to meet known liabilities. So that it
will be debited to P&L A/c where as credit will be hitted
to Assets side of the Balance Sheet (reduced from specific
asset for which it has been created.) Provision needs to be
created in case of losses also and this provision is not
used for distribution as dividends among share holders.
Reserve is created for un known liabilities. and it will be
debited to P&L appropriation account and credited to
liability account in balance sheet.Reserve can be created
in case of profits only.And this amount can be used for
distribution as dividend (Unless specific reserves).
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