Most
Important question - 4 times asked so
far
1984,
1987, 1988, 1995
Differences between
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Reserves
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Provisions
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1. Appropriation of
Profits. Means not mandatory.
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1. Charged against
Profits. Means Mandatory.
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2. Reserves are only made when the business is
profitable.
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2. Provisions are made irrespective of profits earned
or losses incurred by a business.
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3. Debiting P&L
Appropriation A/c
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3. Debiting P &
L A/c
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4. Shown on
Liabilities side of Balance Sheet
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4. Shown on
Liabilities side of Balance Sheet or Deduct from the Asset concerned.
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5. Dividends can be
paid out of Reserves.
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5. Dividends cannot
be paid out of Provisions.
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6. Made to
strengthen the financial position of a Business and meet unknown liabilities
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6. Made to meet
known liabilities such as doubtful debts.
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7. Examples: General
Reserve, Capital Reserve etc
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7. Examples: Provision
for Doubtful Debts, Provision for Depreciation, Provision for Tax, etc.,
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