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what are the similarities between provision and reserve?
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Answer Posted / h.r. sreepada bhagi
As mentioned by Bhagya, accounting for expenses for a
period, the amount is not known exactly but is reasonable
estimated based on the past & showing would be liabilities
in the Balance Sheet. These provisions need to be reversed
in the subsequent accounting period and the expense shall be
accounted for exact amount, when the supporting bill is
received or the expense is ascertained with proper back-up
documents. provisioning is necessary in 'Accrual Concept' of
Accounting to match expenses with revenues in any accounting
period.
Reserve - As mentioned above is profit set aside for
specific or general Purpose. Besides this there can be
Depreciation Reserve, which represents accumulated
depreciation on Fixed Assets (This's an exception).
Provisions are part of liabilities & Reserves form part of
'Net Worth'
Provisions are shown as Provisions for Expenses under
'Current Liabilities & Provisions' & Reserves can be shown
as 'General Reserve', Dividend Equalisation Reserve',
Investment Allowance Reserve', 'Depreciation Reserve', etc,
in the 'Balance Sheet'.
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